The Securities and Exchange Board of India (Sebi) is reportedly examining the purchase of a 7.2% stake in Associated Cement Companies (ACC) by Gujarat Ambuja Cements Limited (GACL). The regulator is considering whether such a deal, which may involve a change in management control, should trigger the takeover code.
The talk of a change in management control has arisen after GACL, in a presentation to institutions, highlighted the joint market share of both the companies (GACL and ACC). Further to this, GACL has two representatives on the board of ACC. Both these factors have led Sebi to consider whether there has been a change in management control.
The Sebi's concern emanates from the fact that a change in management control should trigger the takeover code unless 51% of the shareholders approve the change. Under the provisions of the takeover code, the company would have to make an offer for an additional 20% stake.
If the Sebi were to rule against the company, GACL would have to make an open offer for an additional 20% stake in the company. GACL, as part of the agreement with the Tata group, also had the first right to acquire a further 7.2% stake in ACC from the latter. Both these factors would dramatically pressurise GACL's cash flows. The company would have to resort to debt markets to fund the acquisition. Although this would not be much of a constraint in view of its high creditworthiness, GACL would nevertheless be faced with the prospects of a higher debt-servicing burden. Given that GACL is in the midst of a massive expansion plan, this could create a bottleneck for funding future growth.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407