Mergers and acquisitions - ACC-holcim and L and T-grasim deals

Abstract

India is the second largest cement producer in the world next to China. The industry is fragmented in nature with around 53 companies controlling a total capacity of around 128 million tonnes. However it must mentioned that there are only two companies which can actually influence the market in any way: Grasim-L&T and Holcim-ACC-GACL Combine. A Porter Analysis of the industry revealed that buyer power is limited due to the largely retail nature of the market except for in the case of mega-projects. Supplier power is medium-high due to its monopolistic nature leading most players to integrate vertically. Threat of substitutes is minimal due to the absence of any real substitute. Threat of new entrants is low due to high entry barriers like saturation of local raw material clusters. Competitive rivalry is medium. The effect of VAT is largely positive on the industry. However, it must be noted that as VAT has not been accepted throughout the country, arbitrage opportunity exists for manufacturers who have capacity spread all over the country. We believe that the industry landscape has been considerably modified in the recent times due the consolidation that has taken place. The industry has been remodeled into a duopoly state by the acquisition of UltraTech by Grasim and of ACC by Holcim. The latter event also marks the entry of an MNC as a prime player in the Indian space. The two combines control 45% of the cumulative capacity of Indian Producers and thus they wield significant market power.We have studied and analyzed the two deals from a variety of perspectives and based upon our analysis we believe that though both of the acquisitions can be termed as successful in broad terms, shareholder value actually was lost in the UltraTech deal. Though the ACC deal is very recent in nature, a primary study of the expected benefits due to accrue because of synergies, show that this deal has much higher potential for creating value for all stakeholders.