Holcim has made an open offer for acquiring 20% shares of Ambuja Cement (ACEM) at Rs 154 per share. This follows the acquisition of additional 3.9% stake from the Sekhsaria family at the same price, which necessitated an open offer. The offer price is at a 20% premium over the average price of the last two weeks and implies an EV/ton of USD 285. Upon successful completion of the open offer Holcim's stake in ACEM will likely increase to 56%. We have In Line rating with target price of Rs 130 per share on the stock. Our target price of Rs 130 per share and open offer price of Rs 154 per share implies a weighted average price of Rs 137.6 per share based on an acceptance ratio of 32% (floating stock is 63% prior to open offer). The open offer therefore presents an opportunity to exit at a price higher than our fair value estimate. We believe that cement prices could come under pressure in FY2009 with large new capacity addition and retain our cautious view on the sector. Holcim is keen on increasing stake in ACEM and its willingness to pay a higher price in the event of a poor response to the open offer would be a key risk.
Open offer price of Rs 154 per share implies a buying opportunity in the stock below Rs 137.6 per share for tendering in the open offer
The non-promoter (Holcim/Sekhsaria) holding prior to the open offer is 63%, which implies an acceptance probability of 32% assuming all the shares are tendered in the open offer (20% divided by 63%). Our fair value target price of Rs 130 per share and open offer price of Rs 154 per share gives a weighted average price of Rs 137.6 per share based on 32% acceptance ratio. The stock therefore offers a trading buy opportunity below Rs 137.6 per share for tendering in the open offer.
Open offer will take Holcim's stake to 56%
Holcim through its subsidiary Holderind Investments Ltd, has made an open offer to acquire 20% shares of ACEM at Rs 154 per share, which if successful will take Holcim's stake in ACEM to 56%. Holcim has acquired 3.9% stake in ACEM from the founding family (Sekhsarias) of ACEM for Rs 154 per share in addition to its extant 32.35% stake. Post this acquisition, Holcim's acquisition of ACEM shares exceeds the maximum 5% allowed in a financial year under the creeping acquisition rules. Holcim as a result is obliged to make an open offer (under SEBI Guidelines of Substantial Acquisition of Shares and Takeovers) for acquiring additional 20% of ACEM's equity.
Acquisition to consolidate Holcim's presence in emerging markets
Holcim's acquisition of additional stake at EV/ton of USD 285/ton on CY2007E production and 9.2X EV/EBITDA indicates the premium (replacement cost id USD 85-100/ton) global players are willing to pay to participate in the growth in emerging markets. Asia-pacific contributed 23% to net sales of Holcim in 1HCY2007, making it the second largest market for the company after Europe. In Asia, India represents the highest growth market for Holcim both in value and volume terms.
Open offer price of Rs 154 per share implies a buying opportunity in the stock below Rs 137.6 per share for tendering in the open offer
The non-promoter (Holcim/Sekhsaria) holding prior to the open offer is 63%, which implies an acceptance probability of 32% assuming all the shares are tendered in the open offer (20% divided by 63%). Our fair value target price of Rs 130 per share and open offer price of Rs 154 per share gives a weighted average price of Rs 137.6 per share based on 32% acceptance ratio. The stock therefore offers a trading buy opportunity below Rs 137.6 per share for tendering in the open offer.
Open offer will take Holcim's stake to 56%
Holcim through its subsidiary Holderind Investments Ltd, has made an open offer to acquire 20% shares of ACEM at Rs 154 per share, which if successful will take Holcim's stake in ACEM to 56%. Holcim has acquired 3.9% stake in ACEM from the founding family (Sekhsarias) of ACEM for Rs 154 per share in addition to its extant 32.35% stake. Post this acquisition, Holcim's acquisition of ACEM shares exceeds the maximum 5% allowed in a financial year under the creeping acquisition rules. Holcim as a result is obliged to make an open offer (under SEBI Guidelines of Substantial Acquisition of Shares and Takeovers) for acquiring additional 20% of ACEM's equity.
Acquisition to consolidate Holcim's presence in emerging markets
Holcim's acquisition of additional stake at EV/ton of USD 285/ton on CY2007E production and 9.2X EV/EBITDA indicates the premium (replacement cost id USD 85-100/ton) global players are willing to pay to participate in the growth in emerging markets. Asia-pacific contributed 23% to net sales of Holcim in 1HCY2007, making it the second largest market for the company after Europe. In Asia, India represents the highest growth market for Holcim both in value and volume terms.
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