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ACC may be out of Tata fold by year end

Mar 3, 2000

According to newspaper reports, the Tata group is planning to exit Associated Cement Companies (ACC) completely by the end of the year. The Tata group had earlier sold a 7.2% stake (of a holding of 14.4%) to Gujarat Ambuja Cements Limited. ACC is India's second largest cement company with a capacity of 11.6 m tonnes per annum. The company commands an 11.5% stake in the Indian cement market.

The Tata groups decision is motivated by its desire to raise funding for its Tetley acquisition (UK Pounds 270 m). The amount realised on the sale of the 14.4% stake would be Rs 9 bn (@ Rs 370 per share).

The Tata group has decided to exit ACC, as it does not consider cement as its focus areas. Gujarat Ambuja on the other hand has business interests only in the cement sector. Gujarat Ambuja is considered to be one of the most efficient in Asia. As it has often been pointed out, CC stands to gain tremendously from such an alliance. The benefits arise mainly from the use of better management practices and operational skills of the Gujarat Ambuja.

The Tata group has an option to sell the remainder of the 7.2% stake that it holds to the Gujarat Ambuja between March and December 2000. Further to that, Gujarat Ambuja will have a call option on the stake for another three months (Jan 2001 to March 2001).

The key concern arises from the ongoing Sebi investigation whether or not a change in management has already occurred at ACC. If this were to be held by Sebi, Gujarat Ambuja would have to make an offer for an additional 20% stake at a price of Rs 370 per share. ACC's stock is currently trading at RS 170 per share. This would put intense pressure on Gujarat Ambuja's cash resources. Meanwhile, the holders of the ACC stock would benefit.


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