LafargeHolcim expected to announce merger deal for ACC and Ambuja Cements

LafargeHolcim, the parent company of ACC and Ambuja, is considering merging its two Indian cement majors, sources told CNBC-TV18. LafargeHolcim owns 63 per cent in Ambuja Cements. In November last year, the parent company had increased its stake in ACC and Ambuja Cements by four and two per cent, respectively. Ambuja Cements, already owns a 50.05 per cent stake in ACC.

LafargeHolcim said it did not wish to comment on speculation, but sources tell CNBC-TV18 that the merger is likely to happen in the next year. There is no clarity yet on the merger ratio. Given that ACC has an EBITDA of INR300/t (US$4.46/t) and Ambuja has an EBITDA of nearly INR800/t (US$11.9/t), ACC would be a bigger beneficiary should the merger go through.

In June last year, LafargeHolcim divested assets previously under Lafarge India. LafargeHolcim had agreed to sell Lafarge India Pvt Ltd to Nirma Ltd for INR94bn (US$1.4bn) including debt, as part of a deal to complete part of the global merger of Lafarge and Holcim.

Navin Sahadeo of Religare Capital Markets said the merger would help unlock synergies. He said merging the companies would significantly help in terms of fixed cost rationalising and volume swapping. Rakesh Arora, an independent analyst, said the merger would be logical in terms of synergy of cost branding, logistics, distribution and tax savings. He said that it does not make sense for HolcimLafarge to have 2-3 companies in India.

Anil Singhvi of Ican Investment Advisors said that the merger would be a weakness rather than a strength and that it would not be exciting from the stock market point of view. With the merger being delayed by almost three years, Singhvi said that most companies have lost market share in that period.

"Both companies are laggards in terms of growth creation and EBITDA margins," Singhvi said. Both stocks reacted positively, with ACC going up two per cent and Ambuja rising 3.5 per cent in the half hour since news of the possible merger broke.