Mergers & Acquisition Project

Project

Faculty: Prof. Neeraj Dwivedi

Course: Mergers & Acquisition

Group 4

Name of the students:

 Kishankumar Singh- IPMX16025

 Maktar Uddin Barbhuiya- IPMX16027
 Samarth Bhardwaj- IPMX16045
 Keerthy Jalakam- IPMX16078
 Nivedita Chandrayan- IPMX16086

Project: Ultratech Cement-Jaypee Merger

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CONTENTS Page No.

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BACKGROUND

ULTRATECH – THE ACQUIRER

In one of the largest domestic M&A deals of cement Industry in Feb’2016, Ultratech
announced that it will acquire Jaypee Group's cement plants, situated in the States of
Madhya
Pradesh, Uttar Pradesh, Himachal, Pradesh, Uttarakhand and Andhra Pradesh, with a total
capacity of 21.2 (MTPA) million tonnes per annum at an enterprise value of Rs 16,189 crore.
UltraTech Cement Limited (BSE 532538) is India Biggest cement company and India’s Largest
Exporter of Cement Clinker based in Mumbai, India

The Company is division of Grasim Industries. It has a annual capacity of 52 Million tonnes.
UltraTech is India’s larger exporter of Cement clinker four in India and one in Srilanka. Most
of the plants have ISO 9001, ISO 14001 and OHSAS 18001 certifications

Grasim Industries, an Aditya Birla Group company, has reported a 12 per cent increase in
consolidated June quarter net profit of Rs. 1,400 crore against Rs. 1,248 crore logged in the
same period last year. The increase is due to higher realization from VSF (Viscose Staple
Fibre) and a lower base as the demand last year was weak due to GST introduction.

Under the proposed combination, UltraTech proposes to acquire the undertakings of

Jaiprakash Associates Limited (“JAL”) and its subsidiary Jaypee Cement Corporation Limited
(“JCCL”) that are engaged in sale of cement manufactured at identified cement plants
(including integrated units and grinding units) having a total cement capacity of 21.2 million
tonnes per annum (“MTPA”).

JP CEMENTS – TARGET COMPANY

Jaypee group is the 3rd largest cement producer in the country. The groups cement facilities
are in the Satna Cluster (M.P.), which has one of the highest cement production growth
rates in India.

JAL is a listed, public limited flagship company of Jaypee Group. It is engaged, interalia, in
manufacturing and sale of different varieties of grey cement. As submitted, it, currently, has
a cement production capacity of around 35 MTPA (on an all India basis) through its cement
plants located across India.

JCCL is a public limited company and is a wholly owned subsidiary of JAL. It is engaged in
manufacture of clinker, grey cement, etc

HISTORY JP CEMENTS
 1958 - Undertook first entrepreneurial work as contractor in Mangrol in Kota
 1979 - Jaiprakash Associates Private Ltd formed.
 1986 - Commissioning of 1st unit of 1 MTPA Jaypee Rewa Plant (JRP) in District Rewa,
MP

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 2000 - Formation of Jaiprakash Industries Ltd (JIL) by the amalgamation of

JaiprakashAssociates Pvt Ltd with Jaypee Rewa Cement Ltd
 Public Issue of JIL.
 2,25,00,000 shares issued at a price of Rs. 10/-
 2003 - Formation of Jaiprakash Associates Ltd (JAL) by merging JIL with Jaypee
Cement Ltd

ACQUISITION RATIONALE

FOR ULTRATECH

 The deal will increase its installed capacity by a whopping 25% to 92.3 MTPA,
strengthening its position as the largest cement player in India.
 It will help Ultratech to expand geographically in Eastern Up, Himachal Pradesh,
Costal AP.
 UltraTech will now be the largest player in Madhya Pradesh, it will have a good
pricing
power too.
 Limestone reserves will be transferred to Ultratech.

FOR JP CEMENT
 Outstanding debts and interest – Reduction of debt from Rs 24,126 crore as of
March 31, 2015, to Rs 7,000 crore.
 Market value and piling losses- As of 26th February 2016, it had a market value of
just Rs 1,637 crore (Rs6.73/share)
 All the cement companies and divisions of JP group are in losses eroding the
the net worth of the company.

 Refinance- If MMRD Act gets the nod, the deal may also include a clause that
UltraTech will refinance JP’s borrowings at lower rates. This will bring down the
future interest obligations of the company.

 Core concentration– JP Group is determined to leverage its expertise in the fields of

engineering & construction, real estate and project execution, in a committed
manner and such steps would further ‘cement’ its credentials of being a trustworthy
organization in the long run.

Regulatory & Legal Issues in Deal:

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LEGAL ASPECTS

UltraTech Cements Ltd. (UT) had to call off a Rs 5,325 crore deal to buy Jaiprakash
Associates Limited’s (JP) two cement plants in Madhya Pradesh (5 MTPA) as the Bombay
High Court rejected the scheme of arrangement citing the new MMDR Act as the prime
reason. Under the Mines and Minerals (Development and Regulation) Act (MMDR Act),
mining rights do not get automatically transferred to a new owner unless the acquisition is
100%. Ownership of mines can only be obtained in auctions. Major cement companies are
expecting an amendment in the MMDR (Amendment) Act 2015, to allow the transfer of
limestone mines automatically to the buyers in case of mergers and acquisitions.
In August 2014, Birla Corp had acquired 5.15 mtpa cement capacity of Lafarge India in
Chhattisgarh and Jharkhand for Rs 5,000 crore. But the deal failed as an amendment in the
Mining Act prohibited transfer of mining rights in case of asset sale.
In 2015, the government brought The Mines and Minerals (Development and Regulation)
Amendment Bill, replacing a 1957 legislation which stipulated that mining licenses could
only be auctioned. This amended law allowed transfer of mines allotted through auctions
but was silent on captive mining licenses handed out in the past on the basis of
recommendations of a screening committee.

Transfer of mineral concessions: The Ordinance states that the holder of a mining lease or
prospecting license-cum-mining lease may transfer the lease to any eligible person, with the
approval of the state government, and as specified by the central government. If the state
government does not convey its approval within 90 days of receiving the notice, the transfer
shall be considered as approved. No transfer shall take place if the state government
communicates in writing that the transferee is not eligible as per the Act. Only mineral
concessions granted through auction will be allowed for transfer.

The Lafarge-Birla and UltraTech-Jaypee deals are stuck as the current rules allow plants to
change hands, but not the captive mines attached to them. Mining leases granted prior to
the auction regime cannot be reallocated even within a corporate group let alone be
transferred to other corporates. However, legal experts were divided on whether this clause
will apply retrospectively.
Taking into account several representations made by the stakeholders to provide relief from
the restrictive transfer provision under the 2015 Amendment, the government decided to
introduce a limited amendment (2016 Amendment Bill) to the MMDR Act. The 2016
Amendment Bill aims to include the provisions to allow transfer of captive mines granted
otherwise than through auction where mineral from such mining lease is used exclusively
for captive purpose. The expression “used for captive purpose” has been explained in the
2016 Amendment Bill to mean the use of the entire quantity of mineral extracted from the
mining lease in a manufacturing unit owned by the lessee. It will of course be noted that
section 12A of the Act, which was inserted by an amendment to the Act in 2015, is not
applicable to coal, lignite and atomic minerals
NCLT’s Approval: In March 2016, Jaiprakash Associates received the National Company
Law Tribunal (NCLT)’s approval for the transfer of its cement plants to UltraTech Cement.

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 Transfer of cement assets: The NCLT approved the transfer of six integrated cement
plants and five grinding units from Jaypee Associates Ltd (JAL) to UltraTech Cement
Ltd.

 Payment of consideration: The NCLT approved the payment of ₹16,189 crore from
UltraTech to JAL for the acquisition of its cement assets.

 Settlement of debts: The NCLT approved the payment of ₹5,200 crore from
UltraTech to the lenders of JAL, thereby reducing the group's substantial debt
burden.

 Rehabilitation of workers: The NCLT mandated UltraTech to provide rehabilitation

benefits to the workers of Jaypee's cement plants, ensuring their continued
employment and livelihood.

 Compliance with regulatory norms: The NCLT required UltraTech to adhere to all
applicable environmental and regulatory norms related to the operation of the
cement plants.

 In addition to these specific approvals, the NCLT also imposed certain restrictions on
UltraTech's operations, such as limiting its ability to expand its cement production
capacity beyond the existing levels. These restrictions were intended to prevent
UltraTech from gaining an excessive monopoly in the cement industry.

ASSESSMENT OF COMPETITION COMMISSION OF INDIA ON THE PROPOSED

COMBINATION

PROPOSED COMBINATION OF

Acquirer Company Ultratech

Details of Parent Company
Current Cement Production Capacity
No of Cement Plants
A listed, public limited cement manufacturing company.
A subsidiary of Grasim Industries Ltd, a company of the
Aditya Birla conglomerate.
67.8 MTPA
Various located across India.

Target Company Jaiprakash Associates Limited (“JAL”), its subsidiary

Jaypee Cement Corporation Limited (“JCCL”)

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Details of Parent Company A listed, public limited flagship company of Jaypee Group.
Current Cement Production Capacity 31.65 MTPA
No of Cement Plants Various located across India.

Concern of Competition Commission Of India: Based on the location of identified cement

plants forming part of the proposed combination, there are overlaps between the Parties in
the markets for grey cement in the states of
- Andhra Pradesh,
- Madhya Pradesh,
- Uttar Pradesh,
- Uttarakhand
- Himachal Pradesh.
The Commission considered the market shares and HHI in terms of the installed
capacity likely to be in operation in near future.

Pre- Post- Conclusion

Presence
Combination Combination Comment on of CCI
Of CR 4
Market Market Share HHI from
Companies
Share & HHI & HHI Difference AAEC
point
of View
Hence no
AP
30+ MS à 13% MS à 16% AAEC in the
Relevant 41% 65 à Insignificant
companies HHI à 595 HHI à 661 AP Relevant
Market
Market
Hence no
UP/MP AAEC in the
20~ MS à 13% MS à 21%
Relevant 50% 122 à Insignificant UP/MP
companies HHI à 864 HHI à 986
Market Relevant
Market.
Hence no
UK
20~ MS à 13% MS à 22% AAEC in the
Relevant 52% 126 à Insignificant
companies HHI à 884 HHI à 1010 UK Relevant
Market
Market.
Hence after
2nd Level of
Investigation,
HP
4 MS à 20% MS à 30% Commission
Relevant 100% 400 à Significant
Companies HHI à 5188 HHI à 5588 concludes no
Market
AAEC in the
HP Relevant
Market.

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MARKET SHARE

 Lafarge Holcim - 68% (Market leader)

 Ultratech - 20%
 JAL - 10%
 Cement Corporation of India- 2%

OBSERVATIONS FROM COMMISSION

 Baga Plant of JAL à Lower Capacity Utilization due to absence of

environmental clearances.
 Lafarge Holcim is a Market Leader with a huge 68% of market Share.
Hence Acquirer in the Pre-combination state is not in a good position to
compete with the Market Leader.
 The proposal of combination is from Lenders of JAL.
 The rationale for the Acquisition is increasing Debt on JAL.
 Post Combination, Acquirer intends to introduce and utilize its
processes and core competence to increase the capacity utilization of
target assets.

Hence proposed combination will benefit the market from an increase in overall
economic efficiency in production and increase in the overall quantity of cement,
and Ultratech, post the proposed combination might be in a better position to
compete more effectively than the pre-combination state of competition.

Based on the aforesaid, the Commission decided that the proposed combination
is not likely to result in an AAEC in the HP-relevant market.

Considering the above assessment, the proposed combination is not likely to

have AAEC in India and therefore, the Competition Commission of India approves
the proposed combination under sub-section (1) of section 31 of the Act.

The deal received CCI’s approval nod in August & shareholders’ nod in October 2016.

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