INDIA: Ultratech plans share swap to takeover Century's cement arm

In a bid to take on the competition from Holcim-Lafarge, the Aditya Birla Group’s UltraTech Cement is looking at a share-swap proposal to merge the cement division of B K Birla-owned Century Textiles & Industries with it at a valuation of Rs 10,500 crore. According to sources, contours of the deal, in the making for some time, are taking a final shape.

The transaction, if approved by the boards of both companies, will help UltraTech retain its No 1 position in the sector, as it will add 13 million tonnes per annum (mtpa) to its existing capacity of 65 mtpa, taking it to 78 mtpa.

In comparison, after the €42-billion merger between Holcim and Lafarge, the capacity of both companies will be only 71 mtpa, though the Competition Commission of India is likely to ask the European companies to sell some of their assets in eastern India. When contacted, an Aditya Birla Group spokesperson said there was no such proposal before the board. In a communication to the stock exchanges, Century Textiles termed the news to hive off its cement division “not true”.  

Century Textiles is managed by Kumar Mangalam Birla, director on the board of the company, while the board is chaired by his grandfather, B K Birla. The consolidation will help both UltraTech and Century to cut costs and synergise operations. It will also help it increase capacity without letting go of cash.  Bankers say Axis Capital is working on a proposal to dilute UltraTech’s equity by 12 per cent after the share-swap deal.

On Monday, Century Textiles’ shares closed at Rs 568 apiece, up 2.88 per cent from the previous close. UltraTech, on the other hand, closed marginally up at Rs 2,831 a share.

Bankers say if the deal is cleared by the board, it will immediately give a boost to Century as it will receive good valuation for its cement division, which is almost double of its current market capitalisation of Rs 5,251 crore. The company might retain its other businesses including textiles, rayon and paper. After the share-swap deal, the deal might see the Birla family’s stake come down in UltraTech from 61.69 per cent to 60.31 per cent. The Birla family owns 40.23 per cent stake in Century Textiles.

During the December 2014 quarter, the UltraTech board approved acquisition of the cement business of Jaiprakash Associates in Madhya Pradesh, with a capacity of 4.9 million tonnes, at an estimated enterprise value of $135 a tonne on extended capacity.