At Rs 42.50 a share, the acquisition provides Cimpor, or Cimentos De Portugal, the world's ninth largest cement company, an opportunity to enter the country's booming 173 million tonne a year cement industry, which is investing over Rs 50,000 crore (Rs 500 billion) for ramping up the capacity.
Cimpor will also come out with a mandatory open offer for another 20 per cent at the same price. The open offer announcement is expected to be done within four days. The deal has put the enterprise value of the company at $162 per tonne.
With the acquisition, Cimpor's total capacity will rise to 29.5 million tonnes. The company said the entry into India is "obviously a start" and is eyeing more companies. The Portuguese company operates in twelve countries and has been acquiring cement firms in high growth markets.
Kumar Mangalam Birla, chairman, Aditya Birla Group, had bought SDCC from the Kolkata-based Bangur family in 1998 for Rs 66 crore (Rs 660 million).
It was one of Birla's first major acquisitions when he became the chairman of the group after the demise of his father, Aditya Vikram Birla. SDCC had a turnover of Rs 182 crore (Rs 1.82 billion) company when it was first bought. The company's sales now stand at Rs 289 crore (Rs 2.89 billion).
The acquisition initially went sour as the company slipped into the Board for Industrial and Financial Reconstruction's (BIFR) net. It came out of the BIFR purview only recently.
The top management of Grasim said that the Birla group is ramping up capacities from 30 million tonnes per annum (mtpa) to 45 mtpa by the second quarter of FY09, even after selling SDCC which has capacity of 1 million tonne. SDCC has a jetty in Gujarat which was valued at Rs 100 crore (Rs 1 billion) when Birla purchased it.
For the Birla group, analysts said, cement is the main focus area. Given the fact that limestone availability near the SDCC plant is not enough to sustain production for long, the group sold the company at a decent price, they added.
The SDCC stock on Wednesday closed at Rs 38.50, down 3.39 per cent against Tuesday's close on the Bombay Stock Exchange.
Kumar Mangalam Birla, chairman, Aditya Birla Group, bought Shree Digvijay Cement from the Bangur family in 1998 for Rs 66 crore
Cimpor will make the mandatory open offer expected within a few days to pick up 20 per cent at the same price. It is scouting for more acquisitions
SDCC has 1.07 mtpa capacity and is free from BIFR radar
Second most expensive deal after Ambuja
The acquisition of Shree Digvijay Cement Company (SDCC) by Portuguese cement maker Cimpor has put the enterprise value (EV) of the company at $162 a tonne, the second expensive purchase by a foreign cement firm.
The most expensive acquisition is Ambuja Cement for which Swiss giant Holcim paid $200 a tonne when it bought 13.8 per cent from the Seksharia-Neotia combine last year.
The SDCC acquisition by Cimpor exceeded the valuation put by German cement maker Heidelberg on Mysore Cement for take over.
Heidelberg paid an EV of $117 a tonne for the transaction last year. With the country's cement industry booming, several foreign firms are showing interest and has led to domestic cement firms fetching good valuations.
"It was one of the best offers we got," said D Muthukumaran, vice-president, strategic initiative, Aditya Birla Group.
The list of such deals includes Gujarat Ambuja's acquisition of Modi Cement ($44 a tonne), India Cement's acquisition of Rasi Cement ($68), Italcementi's acquisition of Shri Visnu Cement ($80) and Grasim's acquisition of L&T Cement ($80).
Analysts said SDCC managed to get such a handsome valuation partly due to its jetty. The valuation of the jetty could not be immediately ascertained.
However, Kumar Mangalam Birla had said at the time of taking over SDCC from the Bangurs in 1998 that the jetty should be valued at Rs 100 crore.
"Also, the foreign company had to pay entry premium to get into the burgeoning domestic cement market," said an analyst working with a foreign brokerage.
SDCC last year posted net profit of Rs 54 crore (Rs 540 million) on total sales of Rs 289 crore (Rs 2.89 billion). The deal corresponds to 11.4 times of the estimated EBITDA for financial year 2008.
"With the acquisition, the Cimpor group gains a footing into the world's second largest cement market with a strong growth potential. The market has been growing at 9 per cent over the last three years," Cimpor said in a statement.
However, analysts said Cimpor has its work cut out to establish SDCC as a market leader. "The biggest disadvantage with SDCC is that it does not have enough limestone reserves," analysts added.