World’s third-largest cement maker Cemex set to buy Indian player for $ 550 mn

Mumbai: Mexico’s Cemex SAB de CV, the world’s third-largest cement maker behind European giants Lafarge and Holcim, is close to buying the cement business of Nagpur-based Murli Industries for about $ 550 million.

Cemex has made an offer of $ 550 million after several months of due diligence, said a person involved in the negotiations. However, the price is still being negotiated and the final figure would depend on the outlook for cement prices, the person added. Two other people involved in the talks confirmed that a transaction was imminent but did not comment on other details.

The investment-banking unit of equity brokerage Motilal Oswal, which helped Shree Renuka Sugars in its Brazilian acquisition earlier this year, is advising Murli Industries — which also makes paper and edible oils — along with Macquarie Capital. Bank of America Merrill Lynch is advising Cemex, said the persons involved in the talks and others who are aware of the impending transaction.  A.M. Chandak, Chief Financial Officer of Murli Industries, declined to comment for the story, when reached on his mobile phone.

This will be the first major deal in India’s cement sector after 2005 when Swiss major Holcim took control of two of India’s largest cement companies, ACC and Ambuja Cement India. Both companies had a common set of promoters, the Mumbai-based Sekhsaria and the Kolkata-based Neotia families.  Earlier, Lafarge and Italcementi, the fifth-largest cement maker in the world, were also in discussions with Murli, according to one of the people.

Murli Industries, which has a three million-tonne plant in Maharashtra’s Chandrapur, plans to build two more, one in Rajasthan and the other in Karnataka. The planned new units, with capacities of three million tonnes each, would be built in tandem with 50 mw captive power plants.

But the company is yet to order any equipment for these plants, according to industry officials.

These officials attributed the slow progress to Murli’s debt of about Rs. 600 crore, resulting in a debt to equity ratio of 2.5:1. Murli Industries is expected to completely exit the cement business through this deal.

The deal would value Murli Industries’ cement operations at an enterprise value of over $ 180 per tonne as against a replacement cost, or the cost of building a new plant, of $ 120 a tonne, analysts said.  Cemex’s global competitors, Holcim, Lafarge and Germany’s Heidelberg, have established themselves in the 270 million-tonne Indian cement market. While Holcim controls about a fifth of the market here through ACC and Ambuja, Lafarge operates a 6.5 million-tonne capacity.

Holcim raising stake in ACC

Mumbai: The world’s second largest cement maker Holcim Group has started strengthening its stake in its Indian subsidiary ACC through creeping acquisition for the first time after September 2008.

Ambuja Cement India and three other Holcim entities have raised their stake in the company by 2.01% to 48.21% through open market transactions between December 10 and 24, ACC said in a notice to stock exchanges on Monday.

These purchases seems to be part of creeping acquisition that allows promoters to increase their stake in a company by up to 5% in a financial year without making of an open offer, analysts said. Promoters can do this as long as their total holding is below 75%.

The possibility of a merger of Holcim’s Indian subsidiaries, ACC and Ambuja Cements, has been a talking point among industry players for a long time. But the companies have always refused to comment on this.

According to analysts, the merger may be part of a long-term plan though the timing is hard to guess. India with a capacity of over 270 million tonne is the world’s second largest cement market and is growing at 9-10 % annually.

The news of Holcim raising its stake in ACC renewed the merger buzz among market participants and pushed shares of both ACC and Ambuja Cements higher.

On Monday, shares of ACC closed at Rs 1081.30, up 0.5% from Friday’s close, after touching an intra-day high of Rs. 1,090. Shares of Ambuja Cements also closed up 2.2% at Rs. 144.15.