Coal news and updates

China’s Anhui Conch Cement Co. Ltd, the largest cement maker in Mainland China, was the top bidder for Lafarge India Pvt. Ltd, but lost out to eventual winner Nirma Ltd.

 

Interestingly, while Nirma agreed to buy the 11-million tonnes per annum assets of Lafarge India from LafargeHolcim for an enterprise value of $1.4 billion (around Rs.9,400 crore), Anhui Conch, with a bid of Rs.9,500 crore, was the highest bidder.

 

A spokesperson for Anhui Conch was not reachable, but a person advising the Chinese firm on the deal claims the Competition Commission of India (CCI) may have something to do with its exclusion.

 

That seems unlikely. While LafargeHolcim was asked to divest the assets of Lafarge India by CCI, the antitrust regulator had nothing to do with the choice of buyer itself that was made by the board of LafargeHolcim.

 

Still, it is true that as late as last week, on Friday, Anhui Conch was considered one of the two top-runners to close the deal.

 

“Conch’s bid looks very exciting. If anyone has to take a guess now, it looks like it will be between Conch and JSW (Cement),” said a person involved in the deal on Friday.

 

So, what changed between Friday and Monday?

 

“We have witnessed strong interest from both financial and industrial bidders. However, we are not disclosing any details on further parties that were involved in the divestment process,” said a LafargeHolcim spokesperson in an email response to queries.

 

According to K. Ramakrishnan, senior managing director (strategic relationships) at Spark Capital Advisors (India) Pvt. Ltd, while price maximization might be the objective of the selling party in any transaction, there are several other factors that go into deciding the eventual buyer.

 

Several people involved in the matter, who did not want to be named, said there were multiple reasons as play.

 

“Large M&A (merger and acquisition) deals are not only about pricing. One point of discussion was about who would manage the risks of owning the assets from the time of getting into a share purchase agreement till the consummation of the deal. The seller found Indian promoters more practically and tactically suited to manage such risks,” they said.

 

The people added that the seller may have also seen a large Indian company as “a safe bet” , especially given the regulatory oversight the deal is likely to attract.

 

“The financial ability of the buyer to close the deal is very significant, so is the ability of the buyer to clear all the regulatory requirements. M&A transactions tend to be very time-consuming processes, so when you announce a deal, you want to be doubly sure that there should be no external factor that can emerge to derail the transaction,” said Spark’s Ramakrishnan.

 

Last year, Lafarge India was directed by CCI to divest its cement assets over antitrust concerns following Lafarge SA’s global merger with Swiss cement giant Holcim Ltd in April 2014. After the sale to Nirma, LafargeHolcim will continue to have a significant presence in India through its subsidiaries ACC Ltd and Ambuja Cements Ltd.

 

In August 2015, LafargeHolcim received conditional clearance from CCI to sell Lafarge India’s Jojobera and Sonadih plants in eastern India to Birla Corp. Ltd for an estimated Rs.5,500 crore. However, the deal did not go through due to regulatory issues pertaining to transfer of limestone mining rights, following which Lafarge India submitted a revised proposal to sell its entire cement assets spread across Rajasthan, Haryana, Chhattisgarh, Jharkhand and West Bengal.

 

The sellers may have also looked at the nationality of the buyers. “Factors like the nationality of the bidder which provides maximum certainty in terms of getting regulatory sanctions/approvals also becomes a significant factor. Even more so when a deal has been triggered on account of certain regulatory requirements,” said Siddharth Shah, partner at Khaitan and Co., a full service law firm with offices across India.

 

Indeed, “sovereign considerations can also come into play if it’s a cross-border transaction”, said Spark’s Ramakrishnan. It isn’t clear if they did in this case, although another person familiar with the transaction said China’s opposition to India’s entry into the exclusive Nuclear Suppliers Group in June may have jeopardized Anhui Conch’s chances.

Source: Livemint.com