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Sebi probing ACC - Ambuja deal for takeover signs

Feb 18, 2000

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.


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