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THE TAKEOVER OF RAASI

CEMENT BY INDIA CEMENT

SUBMITTED BY
Aditya M
Amit G
Shweta
Preeti P
 RAASI CEMENT
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 Raasi cement promoted by B.V.Raju and N P K Raju in 1978.

 Main Industry is located in Hyderabad.
 Raasi owned 39.5% stake on Sri Vishnu Cement Ltd. (SVCL)
 Raasi had a Bailout Takeover on SVCL and Raasi is nurturing
SVCL.
 Raasi's cement division had a capacity of 1.60 mtpa and it is a
low cost cement producer.
 Other than cement, the group also had interests in ceramics and
paper
 B.V.Raju – vice chairman of Raasi cement.
 India cement limited
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 Indian Cement Ltd., was one of the largest cement producers in south India.
Established in 1946 in Tamilnadu.
 Cement constituted approximately 97% of ICL's total revenues.
 The process of acquisitions triggered off and started with taking over of Visaka
Cement and CCI's plant at Yerraguntla, (Andhra Pradesh) and Grasim taking over
Dharani Cement and Shri Digvijay Cements...
 In early 1998, ICL had six cement plants, three each in Tamil Nadu and Andhra
Pradesh.
 ICL entered Andhra Pradesh by acquiring the Chilamakur plant from Coromandel
Fertilizers in 1990.
 N.srinivasan – vice chairman of ICL
 SWOT Analysis – Raasi cement
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Strength :
• Low cost Producer.
• Having 39.5% share of
SVCL.
Weakness :
•Weak marketing Set-up.
•NO sons, only sons-in-law.
one of them may sell share
to others.
Opportunities :
•Growth in housing sector -
key demand driver
Threats :
•Close to a weak colleague
always dangerous.
•Government intervention to
adjust cement prices.
 SWOT Analysis – Indian cement Ltd.
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Strength :
•One of the largest cement producers
in south India.
•Cement demand has grown
tremendously on par with strong
economic growth
Opportunities :
• Demand and supply Gap - Additional
capacity of 20 million tons per annum will
be required to match the demand.
•Interchangeable use of names of taken
over companies.
•39.5% share of SVCL.

Weakness : Threats :
• Cement Industry is highly •Raw material prices climbing up
Fragmented. •Pakistan and north Indian competitors.
•Low – value commodity makes
transportation over long distances
-uneconomical
 Takeover RCL – ICL case
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 Hostile takeover - The method of trying to take the control of the company
without the knowledge of the existing management is known as “hostile takeover”.

 Tendency of Financial Institutions (FI) to help out Promoters in hostile takeovers

 However, in Raasi Cements Limited (RCL) and India Cements Limited (ICL), FIs
felt cheated.

 ICL in its hostile bid for RCL made an open offer for RCL shares at Rs. 300 per
share when the share price was at Rs. 100.

 Promoters of RCL sold out its 32% stake to ICL in a negotiated deal during the
term of the open offer at price ranging between Rs.200 to
Rs. 286 per share

 ICL had full control of RCL without having to purchase single share from the
institutional investors.
 TAKEN OVER OF RAASI CEMENT
BY INDIA CEMENT
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 Earlier,1995 Srinivasan got 4% share(0.68 m),1996 – increased to

5%,1997 – increased to 8%.
 By January 1998, Srinivasan had accumulated 18.03% of Raasi's
equity, both through open market purchases as well as by buying
out the stake of an estranged faction of the Raju family.
 In February 1998, Srinivasan announced an open offer to acquire
an additional 20% of Raasi's equity.
 He offered Rs. 300 per share, 72.41% above the stock market
price of Rs. 174 on February 26, 1998.
 Cont..
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 On March 1, 1998, the state-owned APIDC sold its 2.13% stake in Raasi to ICL.

 Chennai-based stockbroker, Valampuri & Co., cornered 1.40 % of Raasi's equity

from the market for Srinivasan, taking ICL's stake in Raasi to 21.56%.

 If it gets share from V.p. Babaria – stake will increase to 28.56 % and it will

become the Vito-power to the company.

 After Negotiation ICL team bought Raasi shares for Rs. 286 a share, i.e.,) Rs. 1.49

billion
 ICL's CEMENT CAPACITIES (EARLY 1998)
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Plant Location Capacity (mtpa)

Sankarnagar Tamil Nadu 1.1

Chilamakur Andhra Pradesh 1.3

Dalavoi Tamil Nadu 0.9

Yerranguntla Andhra Pradesh 0.4

Visaka Andhra Pradesh 0.9

Total                                                                        5.2
 Reasons for ICL to takeover Raasi
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• Demand in Southern region was driven by the housing sector

in Kerala and Tamil Nadu, and large infrastructural
developmental work in Andhra Pradesh. During the period
2000-05, demand for cement was expected to grow at 10-12%
per annum.
• Therefore, prices were expected to increase by at least 5%-6%
p.a. in 2000-05.
• Raasi seemed to be an attractive target for ICL as it was a
relatively low cost producer.
• Analysts felt that Raasi failed to capitalize on its low
production cost, because of its weak marketing set-up,
particularly in Kerala and Tamil Nadu.
11

• Raasi tended to dump the cement in its weak markets

thereby putting pressure on other players in the region.
• The takeover of Raasi also would help in
rationalization of various markets between ICL and
Raasi, and interchangeable use of Sankar, Coromandel
and Raasi brand names.
• Raju had no sons, but his three sons-in-law were
involved with the running of the company, and at least
one of them seemed to be interested in selling out.
 Vision and mission of ICL
 Vision – A readiness to cultivate a global mindset, effectiveness,
harnessing of human resources to enhance job and knowledge
skills of employees, a strong accent on R & D and innovation and
a move away from selling, to innovative marketing in recognition
of the fact that the Customer is truly King, are some of the
strategies that will help corporate to survive and succeed.

 Mission - We should be one of the largest Cement Companies in

the Country. Our growth in size will be through continuous review
of potentials of the existing manufacturing resources, strategic
acquisitions and expansions . Product quality, consistency and
customer service will be pursued as an act of faith throughout the
organization. ICL will continuously strive to enhance its value to
12 its customers, Shareholders and Employees.
 1998 –Takeover Of RAASI CEMENT By INDIA CEMENT

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 SWOT ANALYSIS – ICL (After takeover)
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Strengths : Opportunities :
•Increase in capacity (The addition of •Expansion
Raasi's 2 mtpa and SVCL’s 1mtpa) • Demand and supply can be coup
•Increase in market value. up

Weakness :
•Burden of debt.
•Have to maintain more fragmented
Acquired Cement Industries.
Threats :
•Raasi had sold 39.5% share of
SVCL to some promoter's group
companies, is SEBI,BIFR helps to
get back ?
 POISON PILL
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A strategy used by corporations to discourage hostile

takeovers. With a poison pill, the target company
attempts to make its stock less attractive to the acquirer.
There are two types of poison pills:

1. A "flip-in" allows existing shareholders (except the

acquirer) to buy more shares at a discount.

2. A "flip-over" allows stockholders to buy the

acquirer's shares at a discounted price after the merger.
 Pre-Bid Takeover Defense adopted by RCL
Poison pills :
 Poison pills are any type of defensive maneouvre
which a company might try in order to protect
itself against unwanted takeover bids, eg stock
issues, special distributions, spin-offs and
management pay-outs.
 A corporate provision to combat hostile takeovers.
The poison pill allows shareholders to acquire
additional shares at below market price, thereby
increasing the number of shares outstanding and
making the takeover prohibitively expensive.
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 Legal Issues made by Raasi
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 SVCL (sri vishnu cement limited ) which was the subsidiary of

RCL was transferred by Raju to nine of his associates after the
purchase by ICL of Raju’s shares in RCL. This was violation of 23
of takeover code which prohibits the target company from
transferring its assets after a public announcement has been made
by the acquirer to make open offers for purchase of shares from
public.

 Raju tried to increase his stake more than 90%,so only even after
giving to ICL he can manage to have stack more than 50%.
Post Takeover Synergy
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 Combined cement capacity of ICL increase up to 8 mtpa.

 Operating income of ICL-Raasi combine grew by 55% due to
availability of high cement capacity and steep rise in income.
 The company was able to reduce its freight charges and utilize
resources efficiently.
 Synergy increase its market share from 15% in 1998 to 25 – 26%
in 1999
 Combined synergy To achieve value addition and greater
penetration in southern region.
 Combined synergy leads to expansion of plants to enhance
productivity and efficiency to produce nearly 10 million tones in
2001.
Cont..
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 Burden of debt due to acquisition is very high seen from rising

debt equity ratio.
 Profitability of the merged firm has gone down from 8% to 4% in
2001 leads to lack of realization in synergy.
 In order to realize the synergy the leverage should be brought
down and cash flow should be generated.
 Existing distribution infrastructure of Raasi helps ICL to leverage
this to reduce the freight and other costs.
 In oct- ’99 Raasi sold 39.5% stake to ICL.
 Performance of ICL with Raasi
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YEARS NUMBER OF SHAREHOLDERS

1995 16399

1996 17155

1997 18037

1998 22226

1999 33195

2000 37682

2001 39304

2002 44343

2003 51030

2004 45441

2005 49882

2006 48256

2007 117751

2008 (MELTDOWN) 72814

 Improvement of Raasi along with ICL
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 Southern markets have witnessed good demand, tight supply and

firm price trends in 2007 and the demand outlook for fiscal 2010
also looks promising.
 In the period between fiscal 2010 and fiscal 2011,demand in the
region is expected to grow by 13%.
 Prices are expected to maintain their upward trend it leads to some
of the larger green field projects come on stream.
 In December – ’99 ICLSL (along with ICL and Raasi) purchased
the remaining shares of SVCL.
 Conclusion
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 The whole company currently has a production

capacity of 9.1Mt/year.
 ICL with subsidiary Raasi cement is going well, so the
takeover is valuable.
 A source said that ICL sells about 90% of its
production in Kerala, Andra pradesh and Tamil Nadu,
all this is due to capacity improved by acquisition of
cement companies like Raasi cements.
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