8B16N056

Teaching Note

AMBUJA CEMENTS AND HOLCIM INDIA MERGER

Copyright © 2016, Richard Ivey School of Business Foundation Version: 2016-09-20

SYNOPSIS

On July 24, 2013, the management of Ambuja Cements Limited (ACL) announced the merger of Holcim
(India) Private Limited (HIPL) with ACL in a two-stage process. First, ACL would buy a 24 per cent stake
of HIPL from Holderind Investments Ltd., Mauritius, a wholly-owned subsidiary of Holcim, for ₹35
billion.1 Subsequently, HIPL would merge with ACL. The management of ACL projected great synergy
ASSIGNMENT QUESTIONS

The students may be given the following assignment questions:

1. How will the proposed merger affect shareholders of ACL and ACC? Why do you think Holcim is
interested in this merger?
2. Value HIPL. Was the cash payment of ₹35 billion for a 24 per cent stake in HIPL justified? How does
this cash payment affect the value of ACL’s stock? Is the swap ratio of 10 shares of ACL for 74 shares
of HIPL justified? What swap ratio would you recommend?
3. How realizable were the proposed synergies? Could this deal have been structured in a different way
to realize the same synergies?
4. What should shareholders do?
ANALYSIS

1. How will the proposed merger affect shareholders of ACL and ACC? Why do you think Holcim
is interested in this merger?

We recommend that the instructor begin the discussion by explaining the transaction. It is complicated, and
it would be useful to answer any questions students might have in the beginning. In order to analyze the
case, students must be able to understand the numbers in case Exhibit 4.

HIPL had 5,690,385,095 shares (see page 2 of case). ACL had 1,543,763,286 shares (see case Exhibit 2).
Of these shares, HIPL had a 9.76 per cent stake (150,671,297 shares). In the first part of the proposed
transaction, ACL bought 24 per cent of HIPL (1,365,692,423 shares). Since the merger is financed with
stock, ACL has to issue 10 shares for every 74 shares of HIPL.

The instructor may ask students, “How many shares will ACL issue to the shareholders of HIPL now?”
Some of the students may multiply the total shares of HIPL by 10/74. However, this is incorrect. The
instructor should explain that because ACL has already acquired 24 per cent of HIPL shares, ACL only
needs to acquire the remaining 76 per cent of the shares. Thus, ACL will issue 584,417,929 shares:
(0.1)
10
5,690,385,095 1,365,692,423 584,417,929
74
10
4,324,692,672 584,417,929
74

The second question the instructor should ask students is, “What is the total number of outstanding shares
ACL has now?” Some students may simply add the number given in Equation 0.1 (see top right of equations
for the reference numbers) with the original number of shares of ACL. This would be incorrect. Prior to the
merger, HIPL had a 9.76 per cent stake in ACL (150,671,297 shares). After the merger, all the assets of
HIPL belong to ACL, hence these ACL shares will also belong to ACL. ACL does not need to issue shares
to itself following the share exchange. These shares essentially get cancelled after the merger.

So, after the merger, ACL will have 1,977,509,918 shares:

(0.2)
10
1,543,763,286 1 9.76% 4,324,692,672 1,977,509,918
74
EXHIBIT TN-1: VALUATION OF SHARES OF HOLCIM (INDIA) PRIVATE LIMITED

ACC ACL
Total Number of Shares 187,745,356 1,543,763,286
HIPL’s Stake (%) 50.01 9.76
HIPL’s Stake (Number of Shares) 93,891,453 150,671,297
Price (₹/Share)
Consultant (PwC) 1,251 189.20
July 24, 2013 1231 191.20
November 22, 2013 1,050 174.50
Value of Investments (₹ billion)
Consultant (PwC) 117.44 28.51
July 24, 2013 115.58 28.81