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ACC, Ambuja shares gain on merger announcement

LiveMint logoLiveMint 08-05-2017 Ravindra N. Sonavane

Mumbai: Shares of ACC Ltd and Ambuja Cement Ltd on Monday surged after board of the both the companies announced that they are exploring the possibility of merger.

ACC Ltd shares rose as much as 5.6% to Rs1,753.85—a level last seen on 4 March 2015. Ambuja Cement Ltd shares gained as much as 9.9% to hit a high of Rs270.50—a level last seen on 12 September 2016.

Both the stock gained for the fourth consecutive session.So far this year, they gained 31% each.

A special committee of directors, comprising largely of independent directors, has been constituted to commence the evaluation, ACC and Ambuja Cements said in separate statements on Friday.

According to domestic broking firm Motilal Oswal, the merger may benefit both the companies and potentially see the earnings upgrade by 10% for the combined entity depending on quantum of synergy benefits.

“However multiple re-rating of the stocks would be function of risk associated with realization of synergy benefits and clarity over expansion plans of the group over the next 2-3 years in order to maintain market share,” said Motilal Oswal in a note to its investors.

Both ACC and Ambuja are part of conglomerate LafargeHolcim Group. ACC has about 7,800 employees, runs 17 cement manufacturing sites and 50 concrete plants in India.

Ambuja Cements has a cement capacity of 29.65 million tonnes with five integrated cement manufacturing plants and eight cement grinding units countrywide.

“Currently, Ambuja-ACC swap ratio is 6.7x while six month average has been 6.3x. A swap ratio of less than 7x will ensure promoter shareholding of greater than 50%. Based on our analysis, realisation of merger synergies will present a 15-20% upside in Ambuja from current levels. We await more details from the management on synergies accruing on back of the merger and possible timeline and swap ratio,” said JM Financial in its latest report.

JM Financial has held on to both the stocks and believes that the Ambuja shareholders will be better placed to reap benefits from the merger.

The idea of merger of ACC-Ambuja was first floated in 2013 where synergy benefits of Rs 920 crore were expected to be realized on logistics cost savings, fixed cost reduction, procurement savings etc.

“As they have been under common control for many years, a significant quantum of the Rs9 billion synergies announced during the previous restructuring may have been achieved. Quantifiable benefits could be derived from improved blended realisations from focussed branding. The common pool of limestone mines could address raw material security concerns if any,” wrote Ambit Capital in its report.

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