Harsh Lodha-led Birla Corporation g has agreed to acquire Lafarge e India's two cement units in u the eastern region in a deal r valued at Rs 5,000 crore. It will t mark the biggest M&A play in o the Kolkata-based company's a nearly century-old history a and make it a stronger rival to Kumar Mangalam Birla's UltraTech Cement.
While Harsh Lodha manages Birla Corporation, its ownership is locked in a legal dispute between Lodha and the Birla families, something industry observers say could create obstacles for the big-ticket deal as it requires shareholder and court approvals. The own ership is under dispute after Priyamvada Birla, the widow of M P Birla, named Harsh Lodha's chartered accountant fa ther R S Lodha as the heir to her entire estate.
Birla Corporation pipped several bulge-bracket private equity funds and strategic players to acquire the units. The French multinational sold its Jojobe ra plant in Jharkhand and Sonadih in Chhattisgarh as it was forced to divest certain assets to conclude its global merger with Swiss major Holcim.
The Lafarge acquisition, subject to regulatory approvals, will cement Birla Corporation's rank among the top 10 players in the country with an annual capacity of 15 million tons. Lafarge's two cement units have a total capacity of 5.5 million tons with mineral rights over adequate reserves of limestone, while Birla Corporation has a total capacity of 10 million tons with units in Rajasthan, Madhya Pradesh, Uttar Pradesh and West Bengal. The deal will be funded through a combination of internal accruals and debt. Birla Corporation currently has cash and cash-equivalents worth Rs 2,200 crore on its books.
Birla Corporation, in a statement to the bourses, said the deal will consolidate its position in the eastern India cement market, where the demand supply scenario and outlook continue to remain buoyant.
Harsh Lodha, chairman, Birla Corporation, said: “The acquisition business (of Lafarge India), together with the Concreto and PSC brands, perfectly fits into our strategic vision and ambition of enhancing our competitiveness in our chosen markets.“
“The acquisition business has a demonstrated track record of operational and commercial excellence with profitability amongst the highest in the industry aided by raw material linkages, strong distribution networks and excellent brand loyalty in the attractive Eastern India cement market,“ the statement said.
Birla Corporation posted a revenue of Rs 3,200 crore in 2014-15. It has two major divisions--cement and jute. Cement comprises almost 90% of its turnover. Birla Corp stock went up by 19.27% to close at Rs 540.25 on BSE on Monday .
Kishor P Ostwal, CMD, CNI Research, said, “Birla Corporation acquiring two Lafarge units is a right step as the cement sector is consolidating. Even UltraTech is looking to acquire Century's cement business.“
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