Friday, October 19, 2007

Acquisition of ACC by Holcim - Case Study

Arun Sarna, Dharmesh Kumar, Mayank Bharati (PGDIM 13, NITIE), K.V.S.S. Narayana Rao


On January 20, 2005, Holcim India and/or Holcim Mauritius entered into each of the following agreements, which are related to the indirect acquisition of shares in ACC, with the objective of allowing Holcim India and Holcim Mauritius to take management control of ACC through ACIL. The acquisition of shares in ACC would be consummated only provided the composite FIPB approval is received. For the avoidance of doubt, it is clarified that the Offer has been voluntarily triggered under the SEBI-SAST Regulations by these agreements.
The Acquirer, Holcim made a voluntary Offer to the Public Shareholders of ACC to acquire up-to 69,298,452 fully paid equity shares (“Share(s)”) of Rs. 10/ each, representing in the aggregate 38.84% of the fully paid up equity voting capital (36.88% of the fully diluted equity voting capital) of ACC at a price of Rs. 370 per share, payable in cash and subject to some terms and conditions. Other than ACIL which held 2,46,70,000 equity shares in ACC constituting 13.83% of the fully paid up equity voting capital (13.13% of the fully diluted equity voting capital) of ACC, none of the Acquirer and the PACs held any shares of ACC as of the date of this Public Announcement (20st January 2005).
It was the intention of Holcim India and Holcim Mauritius to acquire management control of ACIL by:-

• Holcim Mauritius buying existing equity shares of ACIL
• Subscribing to additional equity shares issued to Holcim India on preferential basis.

As a consequence of the above steps, the Acquirer indirectly gained management control of ACCL, and hence a separate Public Announcement for acquiring equity shares of ACCL was being made. Further, pursuant to this Public Announcement, the Acquirer intends to acquire management control of ACC through ACIL. The Shares of ACC are listed on the National Stock Exchange of India Limited (NSE), The Stock Exchange, Mumbai (BSE) and the stock exchange at Kolkata. Based on the information available from NSE and BSE, the Shares of ACC are frequently traded on NSE and BSE exchanges. The following agreements were made between acquirers and the target company:

1. A Share Purchase Agreement (SPA) entered into by Holcim Mauritius with GACL, Asian Infrastructure Ganesha Cement Holdings, Inc., a company established under the laws of Mauritius and an affiliate of AIG Asian Infrastructure Fund II L.P. (“Ganesha”), Knight Investments Limited, a company established under the laws of Mauritius and an affiliate of AIG Asian Opportunity Fund (“Knight”) and Indivest Pte Ltd, a company established under the laws of Singapore and an affiliate of GIC Infrastructure Pte Ltd (“Indivest”) whereby Holcim Mauritius will acquire all the 190,746,666 equity shares held by Ganesha, Knight and Indivest (with Ganesha, Knight and Indivest each holding 105,969,311 shares, 31,792,700 shares, and 52,984,655 shares respectively) in ACIL constituting 40% of ACIL’s existing equity capital for Rs. 8,965.09 million at a price of Rs. 47 per equity share of ACIL.

2. A Share Subscription Agreement (SSA) with ACIL and GACL with respect to investment by
• Holcim India in the equity share capital of ACIL by subscription and allotment on a preferential basis of 390,163,637 equity shares in the expanded equity capital of ACIL at a price of Rs. 47 per equity share of ACIL for a total consideration of Rs. 18,337.69 million resulting in the combined holding of Holcim Mauritius and Holcim India in ACIL increasing from 40% to 67%.
• Holcim Mauritius subscribing to and being allotted 81,003 cumulative redeemable preference shares of Rs. 100,000 each for a total consideration of Rs. 8,100.31 million. The monies received by ACIL shall be utilized, inter-alia, for the purposes of this voluntary Offer by Holcim India with a view to reaching in excess of 50% of the voting shares of ACC, as well as for the open offer for shares of Ambuja Cement Eastern Limited(ACEL), a subsidiary of ACIL that would be triggered under Sec 12 of the SEBI-SAST Regulations as a result of the indirect change in control of ACEL on Holcim India and Holcim Mauritius’ acquiring a majority equity stake in ACIL.

3. A Shareholders Agreement with GACL and ACIL setting out the business co-operation and financial collaboration between the parties in relation to and through ACIL, regulating their inter se relationship as shareholders of ACIL. Under the Shareholders Agreement, Holcim shall be in sole management control of ACIL including having the right to nominate majority members (2/3) on the Board of Directors of ACIL including the Chief Executive Officer of ACIL and other executive management personnel of ACIL. The Agreement provides that, in the event of ACIL acquiring control over ACC pursuant to this voluntary Offer, 2/3 of the ACIL nominees on the board of directors of ACC shall be proposed by Holcim and the remaining 1/3 of the ACIL nominees shall be proposed by GACL. The Agreement provides that the rights and obligations of the parties to the agreement are subject to Holcim India receiving a composite approval of the FIPB, no later than April 30, 2005, for the purposes of the investment by Holcim India in ACIL and further downstream investment in ACC and ACEL. The affirmative vote of GACL will be required for the decisions of the board of ACIL, as also the decisions of the ACIL nominees on the Boards of ACC and ACEL, only with respect to the following limited matters:
• Any sale of shares presently held as well as to be acquired by ACIL in ACEL or ACC
• Any transfer (including by way of demerger or scheme of arrangement) of all or substantially all of the business, assets or undertakings of ACIL or ACEL or to the extent under ACIL’s control, ACC
• Any merger, consolidation or amalgamation
• Any change in the authorized or paid up share capital of ACIL or ACEL or to the extent under ACIL’s control, ACC
• Winding up or liquidation of ACIL or ACEL or to the extent under ACIL’s control, ACC.
4. A Put and Call Option Agreement between GACL and Holcim Mauritius, with respect to the rights granted by each party to the other with respect to the 286,120,000 equity shares held by GACL in ACIL and constituting 33% of the post expanded equity share capital of ACIL (in terms of the Share Subscription Agreement), whereby GACL shall have the right to put all or part of the 33% shares held by it to Holcim Mauritius and a matching right to Holcim Mauritius to call all or part of the 33% held by GACL in ACIL. Partial puts and partial calls are only permitted in increments of 11% or more of the shares held by GACL in ACIL. GACL has the right to put the shares anytime on or after June 30, 2005, and in case GACL does not put all the shares then Holcim Mauritius has the right to call the remaining shares anytime on or after January 1, 2008. Pursuant to the exercise of the Put or Call option in full as aforesaid, Holcim India and Holcim Mauritius’ holding in ACIL, directly or through its subsidiaries will increase to up to 100% of the total paid up equity share capital of ACIL. No open offers will be made by Holcim for either ACC or ACEL upon its acquisition of the all or part of the 33% held by GACL in ACIL as a result of the exercise of the Put or Call option as such acquisition will not result in any change of control of ACIL.

About ACC

In a historic merger of 10 cement companies, ACC (formerly known as Associated Cement Companies) was incorporated in 1936. The company is the largest cement producer in India with a total installed capacity of 20 million tones and having a market share of around 12 %. The company is mainly engaged in the manufacture of ordinary Portland cement and blended cement, with the latter's share in total production increasing from 57 % to 83 % in the last decade. The company is also the largest manufacturer of ready--mix concrete (RMC) in India. It also offers consultancy services to the cement industry in Greenfield and Brownfield expansions, raw material assessment, mine planning and upgradation of old cement plants.
It is the only cement company having a pan--India presence, with 14 cement factories situated across the country. It has the largest distribution network of 170 warehouses and over 8,000 dealers in India. Some of the company's popular cement brands include `ACC Samrat', `ACC Suraksha', `ACC Super', etc. The company also expanded through the acquisition route. Cement companies acquired include Cement Marketing Co, Bulk Cement Corporation, Damodhar Cement and Bargarh Cement (the latter two being merged with ACC in March 2006). The company recently bought a 12 % stake in East India based Shiva Cement for Rs.16 crore through a preferential allotment deal.

About Holcim

Holcim, earlier known as Holderbank, has a cement production capacity of 141.9 million tones. It is a key player in aggregates, concrete and construction related services. Holcim was founded in 1912 in the village of Holderbank in Switzerland, and in a decade it expanded to other European markets by investing in a number of cement companies. It invested in African countries like South Africa, and Egypt in the 1930s. In the 1950s and 1960s, Holcim invested in the North American markets. The following decades saw the company entering the Asia Pacific region.
It has a strong market presence in over 70 countries and is a market leader in South America and in a number of European and overseas markets. Holcim entered India by means of a long-term strategic alliance with Gujarat Ambuja Cements Ltd (GACL). The alliance aims to strengthen their clinker and cement trading activities in South Asia, the Middle East and the region adjoining the Indian Ocean. Holcim also intends to use India as an additional base for its IT operations, R&D projects as well as a procurement sourcing hub to generate additional synergies and value for the group.
In a major consolidation deal in 2005, Swiss cement major, Holcim in strategic partnership with GACL acquired a 35 % stake in ACC through Ambuja Cement India (ACIL), the holding company. Subsequently, Holcim further consolidated its stake in ACIL taking its aggregate ownership in ACC to 41.6 %.

Open Offer Price

The Offer price of Rs. 370 per equity share was justified in terms of Regulation 20(4) of SEBI (SAST) Regulations in view of the following:

1 The negotiated price If the Acquirer has entered into any agreement for acquisition of shares or voting rights or Deciding to acquire shares or voting rights exceeding the prescribed percentage Not Applicable
2 Price paid by the Acquirer Price paid by the Acquirer or the PAC for any acquisition including by way of allotment in public or rights issue or preferential issue by ACC during the 26-week period prior to the date of this Public Announcement Not Applicable
3 Higher of (1) or (2):
Share price data of ACC on NSE, where it is most frequently traded, is as under:
1. The average of the weekly high and low of the closing prices of the shares of ACC during the 26 weeks preceding the date of the announcement
2. The average of the daily high and low of the closing prices of the shares of ACC during the 2 weeks preceding the date of the announcement.

Rs. 282.94

Rs. 350.61

Holcim and GACL agreed to an Offer Price of Rs. 370 per share, which was higher than the price pursuant to above.


The schedule of the activities pertaining to the Offer was given below:

Activity Original Date
Specified Date* Jan 28, 2005
Last date for a competitive bid Feb 11, 2005
Date by which Letter of Offer to be dispatched to shareholders Mar 4, 2005
Date of opening of the Offer Mar 9, 2005
Last date for revising the Offer price Mar 16, 2005
Last date for withdrawing acceptance from the Offer Mar 22, 2005
Last date of closing of the Offer Mar 28, 2005
Last date of communicating rejection/ acceptance and payment of consideration for accepted tenders Apr 12, 2005

* Specified date is only for the purpose of determining the names of the shareholders as on such date to whom the Letter of offer would be sent and all owners (registered or unregistered) of the shares of ACC (except the Acquirer and the PACs) are eligible to participate in the Offer any time before the closure of the Offer.

The Acquirers and the Persons Acting in Concert (PACs)

Holdcem Cements India Private Limited (Holcim India)

Holcim India is a private company incorporated on September 5, 2002 under the Companies Act, 1956. Holcim India is a wholly owned subsidiary of Holcim Mauritius, formed to act as a holding company for making downstream investments in cement manufacturing ventures. Holcim Mauritius itself is a wholly owned subsidiary of Holderfin B.V., a private limited liability company registered in Amsterdam, The Netherlands, which is a fully owned subsidiary of Holcim Ltd.
Holcim Mauritius has access to adequate funds and shall make such funds available to Holcim India immediately upon receipt of FIPB approval for the downstream investments to be made by Holcim India in ACIL and further ACIL making the required downstream investments in ACC and ACEL.
Holcim India has not yet commenced any business activities in India. Holcim India is currently an unlisted company and hence P/E ratio is not applicable and not considered.

Holderind Investments Ltd (Holcim Mauritius)

Holcim Mauritius is a company incorporated on April 20, 1993, under the laws of Mauritius having its registered office in Mauritius. Holderfin BV is the holding company of Holcim Mauritius. Holcim Mauritius is an indirect subsidiary of Holcim Ltd, one of the world’s leading suppliers of cement as well as aggregates (gravel and sand), concrete and construction related services. It was established to undertake offshore business activities as a corporate investment vehicle.
Holcim Mauritius is an unlisted company in India and hence P/E ratio is not applicable. The Holcim Ltd shares are listed on the SWX Swiss Exchange and traded on Virt-x. The shares are also traded on the Frankfurt Stock Exchange and in the form of ADRs (which are equivalent to 0.5 equity shares) in the US.

Ambuja Cement India Limited (ACIL)

ACIL is at present a subsidiary of GACL, which holds 286,120,000 equity shares constituting 60% of its paid up equity share capital while 190,746,666 equity shares constituting 40% of the paid up equity share capital are held by Ganesha, Knight and Indivest (with Ganesha, Knight and Indivest each holding 105,969,311 shares, 31,792,700 shares, and 52,984,655 shares respectively). ACIL is engaged in the business of investing in companies in the field of cement manufacture and marketing. ACIL is pursuing and has the rights to set up a Greenfield cement manufacturing project in the State of Andhra Pradesh, for which it has entered into agreements for the transfer of mining leases and land from GACL in its favor. Shares of ACIL are not listed on any stock exchange and hence P/E ratio is not applicable.

Gujarat Ambuja Cements Limited (GACL)

GACL being the holding company of ACIL is deemed to be a person acting in concert. GACL was incorporated on October 20,1981 and has its registered office at P.O. Ambujanagar, Taluka Kodinar, District Junagadh, Gujarat 362 715. GACL does not belong to any group. Its key shareholders are the Promoters, including RKBK Financial Services Pvt. Ltd. and Radha Madhav Investment Ltd., who hold 23.66 % of the paid up equity share capital of GACL.

GACL, with its subsidiaries is among the largest players in the Indian cement industry, with a total installed capacity of 14.86 mtpa of cement (including ACEL). It is one of the most profitable and efficient companies in the Indian cement industry. GACL has a market capitalization of approximately Rs. 80,000 million. It has subsidiaries located in India as well as in Mauritius and Sri Lanka.
The shares of GACL are listed on NSE, BSE, and the stock exchange at Kolkata. The closing price of the shares of GACL on NSE as on January 19, 2005 was Rs. 445.25 and on the BSE as on January 19, 2005 were 445.35. Based on the closing price of the shares of GACL as on January 19, 2005 on NSE and the EPS for year ended June 30, 2004, the P/E ratio is 21 times.

Regulatory Requirements and Statuary Approvals mentioned in the offer document

The Offer to purchase the shares tendered and accepted and to pay for the same, was subject to the receipt of the composite approval to be obtained by Holcim India and Holcim Mauritius from the Foreign Investment Promotion Board (FIPB) permitting:
1. Investment by Holcim Mauritius in Holcim India for the purpose of making downstream investments in the cement manufacturing ventures of ACC and ACEL through ACIL, and
2. The acquisition by Holcim Mauritius of the 190,746,666 equity shares held by Ganesha, Knight and Indivest (with Ganesha, Knight and Indivest each holding 105,969,311 shares, 31,792,700 shares, and 52,984,655 shares respectively) in ACIL at an aggregate consideration of Rs. 8,965.09 million; and
3. Subscription by Holcim India to 390,163,637 new equity shares of Rs. 10 each in the expanded equity share capital of ACIL and subscription by Holcim Mauritius to 81,003 6% cumulative, redeemable preference shares of Rs. 100,000 each in ACIL for the purposes of the ACC and ACEL open offers; and
4. Acquisition by Holcim Mauritius or any of its affiliates of all or part of the 33% equity stake held by GACL in ACIL pursuant to the exercise of the put or call option, as the case may be at the price agreed between the parties to the Put and Call Option Agreement. The acquisition by ACIL of shares under this Offer for shares of ACC and under the Offer being simultaneously made for shares in ACEL, as well as of shares of ACC and ACEL through open market purchases or off-market deals as permitted under the SEBI-SAST Regulations. The Acquirer along with Holcim Mauritius will make the necessary composite application to the FIPB for approval of each of the above described investments.

The purchase of shares tendered by non-resident shareholders of ACC by ACIL may be subject to RBI approval under the Foreign Exchange Management Act, 1999(FEMA). Besides this, as on the date of this Public Announcement, no other statutory approval is required to acquire the shares tendered pursuant to this Offer. In terms of Regulation 27 of SEBI-SAST Regulations, the Acquirer will not proceed with the Offer in the event that any statutory approval indicated above is not obtained.

The other important regulations are as follow:

1. In case of delay in receipt of any statutory approval, SEBI has power to grant extension of time to the Acquirer for payment of consideration to shareholders, subject to the Acquirer agreeing to pay interest for the delayed period as directed by SEBI in terms of Regulation of SEBI-SAST Regulations.
2. The Acquirer does not require any approvals from financial institutions or banks for the Offer.
3. The Acquirer and PACs have not been prohibited by SEBI from dealing in securities, in terms of direction issued under Section 11B or any other regulations made under the SEBI Act.
4. Pursuant to Regulation 13 of the SEBI-SAST Regulations, the Acquirer has appointed DSP Merrill Lynch Ltd. as Manager to the Offer. It was clarified that on the date of the announcement, the Manager to the Offer did not hold any shares in the Target Company.
5. The Acquirer and PACs accept responsibility for the information contained in the Public Announcement. The Acquirer and PAC are jointly and severally responsible for the fulfillment of their obligations under the SEBI-SAST Regulations

Synergies Claimed

Indian Scenario at that time

The Indian economy is experiencing a major turnaround in recent times. India is the fastest growing economy fuelled by a strong GDP growth led by resounding performance in manufacturing and service sectors. The performance on the overall export front is also creditable. The Indian Rupee has proved to be a strong reliable currency on account of improved FDI inflow and healthy foreign exchange reserves. During the year the Indian capital market did well, in concert with global markets. All these trends are an indicator that the Indian economy is finding an important place in the global context. India is the second largest producer of cement in the world. The cement industry witnessed a significant growth of 11.3 % in calendar year 2006 against 9.4 % in 2005. During the year, most cement companies operated at high capacity utilization levels to meet increasing demand. While the pricing environment was favorable during the year, there were significant increases in costs particularly in energy, transportation and other inputs. The year was a commendable one considering the massive increase in the production of blended cement, especially fly ash based. With rapidly growing housing, infrastructure and real estate sectors and the ambitious plans for developing Special Economic Zones, the cement industry is expected to enjoy double-digit growth.

Benefits to the Acquirer
Holcim's move to buy a stake in GACL and ACC as expected, had a positive effect on ACC as well as Holcim. The synergies claimed by Holcim are:
1. Holcim is the largest cement producing company in the world and has been looking to build a presence in India. This merger will enable Holcim to pursue further acquisition opportunities in India using the robust cash flows of the ACC and GACL.
2. This merger will make Holcim, the biggest player in Asia Pacific region. This is one of the main objectives of the Holcim.
3. For GACL this global cement partnership will consolidate their presence in the Indian Cement Industry. This is a win-win situation for both the companies and their shareholders. This partnership with Holcim will not only help GACL further strengthen their relationship with ACC, but also give them access to many of Holcim’s strengths like R&D, fuel sourcing, Information Technology, etc.

Benefits to the Target
Cement stocks across-the-board posted high gains during the next three months of the announcement. ACC has been at the forefront with a 40 per cent gain since Holcim acquired a foothold in Gujarat Ambuja. The synergies claimed by ACC are:
1. Under Holcim management ACC has launched a series of initiatives to reduce costs and improve efficiency, including exploring the use of alternative fuels as energy sources at its plants. It is rolling out SAP currently with the assistance of Holcim.
2. Due to close and continuous interaction with the Holcim Group ACC gained many mutual Synergies and imbibe valuable expertise and knowledge. The most critical initiative has been in the area of Information Technology. The Company's Project "CONNECT India" for implementation of SAP will provide vital connectivity across key business functions between all business establishments of the Company.
3. In yet another initiative, ACC undertook an assignment on plant to market benchmarking which involved a close examination of delivered costs of cement to all micro-markets served by the Company's network with a view to optimizing the short and long term supply patterns to these markets and developing strategies for future linkages. Among other initiatives taken up were AFR, product portfolio management and end to end logistics, with considerable inputs from Holcim. Most of these studies have been completed and the benefits are being accrued in ACC’s operations.

Other Synergies

1. Stability in Cement Prices: The Holcim-ACC deal will also bring stability in cement prices. Consolidation in the industry has a positive impact on the pricing rather than in the case of fragmented players. Cement, being a demand-driven sector, will continue to see robust demand in the next two years. Cement prices in the next couple of years will be firm with a positive bias and will be a function of costs and regional demand. The consortium of Holcim-ACC-Gujarat Ambuja and the Aditya Birla group together commanding more than 50% of the market share will result in price stability.

2. The Holcim-Ambuja deal is a positive step for the cement industry. The fact that Holcim paid $220 per tonne for Gujarat Ambuja stake shows that foreign players are hell bent to gain grounds in the Indian markets

3. The Holcim deal will surely put the Indian cement industry on the radar of international players. It will surely garner attention from other foreign players, though the focus will be to acquire mid-cap companies or maybe the cement division of companies which are looking at exiting non-core businesses as in the case of L&T. ACC exiting out of its other non-core business and Gujarat Ambuja will soon follow suit. Thus Holcim - ACC - Gujarat Ambuja will have sheer focus on cement.

Events Subsequent to the Announcement

21-Jan-05 Media first announcement for takeover
21-Jan-05 Open offer announcement
Jan 2005 Holcim acquired 67% stake in Ambuja Cements India Limited (ACIL), the investment arm of GACL, which had a 34% holding in ACC. Subsequently, Holcim’s stake in ACC increased to 24.4% from existing 22.8%.
23-Mar-05 Open offer opening date
Holderind Investments Limited (‘Holcim Mauritius’) acquired the 40% stake held by the other investors in ACIL. ACIL issued on a preferential basis 39,01,63,637 equity shares to Holdcem Cements Pvt. Ltd., India.
11-Apr-05 Open offer closing date
Apr-2005 ACIL increased its shareholding in The Associated Cement Companies Limited ('ACC') and Ambuja Cement Eastern Limited ('ACEL') through open offers, consequent to which, ACIL's shareholding stands at 34.71% in ACC and 96.94% in ACEL.
Holcim entered in a licensing agreement with GACL to retain the name of ACIL, which holds 34.7% stake in ACC and is a special purpose vehicle (SPV) of the Holcim. Holcim’s strategy to stick to the Ambuja brand name instead of building its own brand presence in India is in line with its global strategy to strengthen its presence in the new markets and to cash in on the established brands of its subsidiary companies.
ACC proposes to merge its subsidiaries, Bargarh Cement Limited (capacity of 0.96 million tonnes) and Damodhar Cement (grinding capacity of 0.53 million tonnes) with itself with effect from April 01, 2005. The merger would result in better operating efficiencies, productivity and economies of scale that would help reinforce the company’s presence in Eastern India
6-May-05 Media announcement of merger
July-2005 Divestment of Non-Core business: ACC decided to exit completely from its non-core business and concentrate on its core business i.e. cement. The company decided to sell its Refractory Business to ICICI Venture Funds for a sum of Rs257cr. It is expected to exit its remaining three subsidiaries viz., AMCL (machinery), ACC Nihon Casting (castings) and Almatis ACC (specialty alumina). The company has already put its construction subsidiary, Everest Industries on the block.
ACC has decided to sell 50% stake in its subsidiary Everest Industries Limited. It has entered into a Share Purchase Agreement with Everest Finvest (India) Pvt Limited for sale and transfer of 74 lakh Equity Shares of Everest Industries Limited for a total consideration of over Rs 99cr. This represents around 50% of the Equity Share Capital of Everest Industries Limited
25-Dec-05 High court approval for merger
24-Jan-05 Merger Process Completed (Transfer of management control to Holcim)

Structure and Financing of the Deal

Following are the significant structural aspects of the deal:
1. The deal was a taxable transaction as the payments were to be made in cash form.
2. The Acquisition process was carried out with stock purchase.
3. The form of payment was cash.

The total fund requirement for the acquisition of up to 69,298,452 shares at Rs. 370 per share is Rs. 25,640 million. Holcim India will contribute Rs. 18,337.69 million for subscribing to equity shares of ACIL, and Holcim Mauritius will contribute Rs. 8,100.3 million for subscribing to preference shares of ACIL as part of the Share Subscription agreement. Under the Share Subscription Agreement, a sum of USD 530,476,429 million (equivalent to Rs. 23,184.47 million) is currently held in an escrow account with HSBC Guyerzeller Bank, Zurich, Switzerland to be jointly operated by Holcim Mauritius and GACL. These funds will be transferred to ACIL through Holcim India for capitalization and these funds in turn would be used for making payments to the tenderers in the Open Offers for ACC and ACEL.

The Manager to the Offer is satisfied about the ability of the Acquirer to implement the Offer in accordance with the SEBI-SAST Regulations as firm financial arrangements are in place to fulfill the obligations under the SEBI-SAST Regulations.

Further, Holcim Mauritius has made a cash deposit of US$ 6,024,185 million (equivalent to Rs. 263.3 million only) with HSBC Guyerzeller Bank AG, Zurich, Switzerland and provided a bank guarantee for Rs. 2,782.87 million by HSBC Mumbai, with an aggregate commitment of Rs. 3,046.16 million only, being in excess of the amount required under Regulation 28(2) of the SEBI-SAST Regulations i.e. 25% for the first Rs. 100 crores and 10% thereafter. DSPML has been authorized to realize the value of the aforesaid bank account and bank guarantee. Upon FIPB approval being received by Holcim for all the transactions above, the amount in the aforesaid bank account and the bank guarantee will be released to Holcim Mauritius, subject to alternate security arrangements acceptable to DSPML being put in place in India by ACIL.
Certain financial details contained in the Public Announcement are denominated in USD, EUR and CHF. The Rupee equivalent quoted in case of USD and EUR is calculated in accordance with the RBI Reference rates as on January 18, 2005, namely 1USD = Rs. 43.74 and 1EUR = Rs. 57.06, while the Rupee equivalent of CHF numbers is calculated by first converting CHF into USD using the NY Fed Noon Buying Rate on January 18, 2005, namely 1USD = 1.1839 CHF, and then using the RBI Reference Rate to convert USD to Rupees leading to an effective rate of 1 CHF = Rs. 36.95
11. Subsequent performance

ACC Limited contributed net income of CHF 244 million to the Group for the period from January 24, 2006 to December 31, 2006. If the acquisition of control had occurred on January 1,
2006, Group net sales and net income would have been CHF 117 million and CHF 6 million higher, respectively.

ACC took a string of decisions to retain its leadership position since Holcim became the single largest shareholder in the company. These include exit from non-core businesses, enhanced focus on RMC unit and installation of SAP based software to ensure connectivity across different business functions. Holcim is also working closely with ACC to create mutual synergies in the area of logistics and alternate fuel technology. In the latter case, it is exploring alternate options like grass, agro wastes and petroleum coke in some of the captive plants to contain power costs.

As per the Holcim Annual Report 2006,
“2006 was a milestone on the way to additional growth. In India, the world’s fastest-growing cement market, we strengthened our investments and simplified the structure through the merger of Ambuja Cement Eastern with Gujarat Ambuja Cements. Together with ACC, we now have an annual capacity of 38.2 million tonnes of cement. As India’s second-biggest cement manufacturer, we aim to continue to grow in this market through targeted expansions. ACC and Gujarat Ambuja Cements currently have cost-efficient capacity extension projects underway on a scale of around 15 million tonnes. Together with all other plant expansion projects in the implementation or planning stage, the Group will be commissioning a total of some 25 million tonnes of cement capacity between now and 2010.”

The report further states:
“In India, where the past two years have seen Holcim establish a foothold through major acquisitions, we are facing a special challenge in the human resources sector and on the training front. Each year, the two Indian Group companies need to recruit hundreds of employees and integrate them into the organization simply to keep up with market growth. To this end, special training packages have been developed and made available for all hierarchical levels. These also include technical simulation programs that enable broad-based, risk-free training in realistic conditions. We have already trained 90 percent of the ACC management in the Holcim-specific Project Management Approach. This means that some 70 major projects are currently being managed according to standard parameters.”
As a result, Cement sales in Group region Asia Pacific rose by 90.3 percent to 55 million tonnes. Group region Asia Pacific recorded the largest volume increase of 26.1 million tones. This was mainly due to the first-time consolidation of the new Group companies in India – ACC from February and Gujarat Ambuja Cements from May.

On future investments, the report highlights:
“The newly acquired companies in India, Gujarat Ambuja Cements and ACC, have made a start on two major investment projects in the east of the country which will be completed in 2009. This is intended to strengthen the two companies’ market position in an area which is expected to see strong growth thanks to investment in the mining and the metal-working industries, increased industrial construction activity and infrastructure projects. Gujarat Ambuja Cements is planning a second kiln line in Bhatapara (federal state of Chhattisgarh) which will boost production capacity by 3 million tonnes. In Bargarh (federal state of Orissa), ACC is investing in a comprehensive modernization program which will create additional production capacity amounting to 1.1 million tonnes. Both sites will also benefit from new power plants which will provide a more reliable electricity supply and reduce energy costs. The planned investments amount to around USD 300 million.”

Holcim’s Annual Report for Q1 CY07 read,
“The sharp rise in consolidated cement sales by 57.4 percent to 15.9 million tonnes is primarily due to the two Indian Group companies. Shipments of aggregates increased substantially by 14.3 percent to 0.8 million tonnes. Deliveries of ready-mix concrete increased by 20 percent to 1.2 million cubic meters.”
“Capacity is being selectively expanded, particularly in the growth market of India. Ambuja Cements will be constructing five further grinding plants and two kiln lines in the coming years. ACC will also substantially expand its production capacity. Major work on extending two existing plants has already started, supplemented by two new grinding plants. By the end of 2010, production capacity in this growth market will expand by about 15 million tonnes in total to well over 50 million tonnes. This capacity expansion will allow the two Group companies to profit from the anticipated market growth and generate additional added value.”

Further Developments:

During the period Q1 CY07, Holcim increased its participation (voting right) in ACC and Ambuja Cements in India to 38 percent and 28 percent, respectively, through open market purchases.

With effect from June 30, 2007, Holcim holds 43 percent of the share capital (voting rights) of ACC and 32 percent of Ambuja Cements.

Holcim is currently selectively expanding capacity in the growth market of India. By the end of 2010, production capacity is expected to grow by about 15 million tonnes in total to well over 50 million tonnes.

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