Birla Corporation on Monday said it had agreed to acquire two units of Lafarge India for an enterprise value of Rs 5,000 crore. The entities being acquired are an integrated cement unit at Sonadih (Chhattisgarh) and a cement grinding unit at Jojobera (Jharkhand), along with the Concreto and PSC brands.
Birla Corp is part of the MP Birla Group and cement accounts for about 90 per cent of revenues.
“The acquisition business, together with the Concreto and PSC brands, perfectly fit into our strategic vision and ambition of enhancing our competitiveness in our chosen markets,” said Harsh Lodha, chairman of Birla Corp.
The total capacity of the acquired entities stood at 5.15 million tonnes per annum (mtpa) and mineral rights over adequate reserves of limestone, the company said. Following the acquisition, Birla Corp’s capacity would stand at 15 mtpa. Currently, the company has seven plants in Madhya Pradesh, Rajasthan, West Bengal, and Uttar Pradesh.
For the deal, Kriscore Financial Advisors and SBI Capital were the financial advisors for Birla Corp, while Arpwood Capital was the advisor for Lafarge.
According to Birla Corp, the addition of the Concreto and PSC brands would provide synergy and help it consolidate its position in the east Indian cement market, where demand prospects are good.
For Lafarge, the sale of assets is part of a precondition for its global merger with Holcim Ltd. Last April, Holcim and Lafarge had announced a $44-billion alliance to create the world’s largest cement company. The merger secured a clearance from the Competition Commission of India earlier this year, but the watchdog directed both parties to dispose of capacities worth five million tonnes to meet regulatory guidelines for the merger. As a part of the asset divestment plan, Lafarge had to sell its assets in Jojobera and Sonadih.
Following the divestment the LafargeHolcim’s capacity in India will stand at 68 mtpa.
Sources said there were several bidders for the assets, including international cement giants such as CRH Plc of Ireland, German company Heidelberg Cement, Brazilian firm Votorantim Cimentos SA and domestic cement company Shree Cement. These firms had submitted non-binding bids for the assets. H M Bangur, managing director of Shree Cements, confirmed his company had bid for the assets.
“We were in the race but in business, it ultimately works down to the valuation, which was not matching our expectation,” said Bangur.
“Given the increasing challenges in setting up new plants and expectations of a demand-up cycle, we see acquisitions as the preferred route for expansion for companies. It gives companies immediate access to markets, compared to a gestation period of five to seven years for new plants,” said a report by JP Morgan.