Av Birla Group Buys Out Canada Pulp Co In First Overseas

In its first major acquisition overseas, the Rs 15,000 crore Aditya Vikram Birla group has formed a 50:50 joint venture with Tembec Inc of Canada to take over Atholville Pulp Mill, a loss-making unit of Repap Enterprises of Canada. The deal was concluded for C$1.

The acquisition marks a shift in the strategy of the AV Birla group, which was hitherto focussed on organic growth.

The joint venture, named AV Cell Inc, plans to infuse $24.3 million in a mix of equity and subordinated debt to shore up the mill.

After conversion and start-up , the Atholville Pulp Mill will supply 110,000 tonnes of dissolving grade chemical wood pulp to the group, according to an AV Birla group statement.

 

The entire production will be exclusively for the consumption of the Indian conglomerate. Production is expected to start by the third quarter of 1998.

Group flagship Grasim Indus-tries alone hopes to procure 35,000 tonnes of pulp from this venture. Grasim has an annual pulp requirement of 252,000 tonnes, of which it produces 130,000 tonnes.

Grasim , the main beneficiary of the deal, will pick up 16.67 per cent in AV Cell, while three other group companies based in Southeast Asia will together hold 33.33 per cent. Grasim has already contributed Rs 7 crore as its part of the deal.

The acquisition is Kumar Mangalam Birlas first since taking over as group chairman in October 1995. Birla said the group would now focus sharply on acquisitions.

We have been growing organically. We will look at acquisitions as a growth strategy provided they are at the right price and enhance shareholder value, he said.

The group would not look at unrelated buy-outs but would primarily focus on industries where it plans to consolidate its position, he added.

Through this deal, we will consolidate our position as the leading VSF producer in the world, he added. The AV Birla group, Indias second largest after the Tatas, has grown over the years through mega greenfield projects, financed primarily through debt.