Merger of Samruddhi Cement with

UltraTech Cement
Date of Announcement of Deal: 15-11-2009
Date of Merger: 01-07-2010
Merger Entities: UltraTech(Acquirer) and Samruddhi(Target)
Deal Value: $826.44 Million
Nature of the Merger: All stock deal, Consolidation
Industry: Cement Industry

Section B | Group 5

Chandan Gupta | PGP28086

Geete Sagar | PGP28083
Rajya Lakshmi | PGP28111
Deekshita Bhist | PGP28199
Neeharika Velavarthy | PGP220
Meghana Katiki | PGP28230
Piyush Chowdhary | PGP28337

Contents

Industry Overview
Porters 5 Forces Cement Industry
VRIO Analysis
Value Chain Analysis
Corporate Strategies followed by Target
Merger Motives
Due Diligence
Deal Structuring
Market Reaction
SDC Data Analysis
Unique Aspects

Industry Overview
2nd largest cement
producer and
consumer (world)

Production of cement in India was nearly 250 Mn

tonnes in FY2012, next only to China
Comprises 183 large and 356 mini cement plants

Fragmented industry
with concentration in
geographic regions

Over 100 players present in the cement industry

Players are concentrated share-wise in the regions
that they are present in

Critical Success Factors

(CSFs)

High growth rate

Production CAGR of 10% registered over FY06-FY13

Immense momentum in capacity addition driven by
growth in construction and infrastructure industry

Market Share
Pan-India

Regional

13%
34%
53%

Cement is a bulky and commodity-like product.

Location

Distribution

Consolidation

Operating
efficiencies

The cement industry is cyclical in nature; growth is

hampered and spurred in turn by the construction and
infrastructure industry
The cement industry is sensitive to legal and public
actions due to the environmentally-unfriendly nature of
its processes

Other

Porters 5 Forces Cement Industry

Threat of rivalry MEDIUM
Few firms in each region.
However, commoditized nature of
product ensures limited inter-firm
rivalry

Supplier Bargaining Power

MEDIUM
Fuel (coal), electricity & freight
companies are localized and
monopolistic, hence possess
some bargaining power

Barriers to Entry HIGH

High investments, significant
economies of scale, immense
distribution requirements

Threat of substitutes LOW

No major substitute to cement
found as of yet
Plastics, fly ash and bitumen may
pose very limited threat

Bargaining power of buyers LOW

Cement firms are major players in
their respective regions
High transportation costs lessens
bargaining power

Samruddhi Cement

UltraTech Cement

VRIO - Analysis
Competency

Valuable

Rare

Inimitable

Organization

Core
competency

Product versatility

Yes

No

No

Yes

No

Raw material sourcing

Yes

Yes

Yes

Yes

Yes

Production Technology

Yes

Yes

Yes

Yes

Yes

Logistics efficiency

Yes

Yes

No

Yes

No

Competency

Valuable

Rare

Inimitable

Organization

Core
competency

Product innovation

Yes

Yes

No

Yes

No

Environment-friendly

Yes

Yes

Yes

Yes

Yes

Location/Presence

Yes

Yes

No

Yes

No

Cement Production - Process

Quarrying
Raw materials

Manufacture

Distribution

Limestone

Fuel Coal,
Gas

Milling

Burning

Sand/Ash

Grinding

Clay/Shale

Mixing

Warehousing
Transportation

Sales/Delivery

Value Chain Analysis UltraTech

Procurement
Greatest strength of
UltraTech lies in its raw
material sourcing
High quality raw
material quarries in
possession
Locked-in resources
through long-term lease
contracts

Technology
Development
Focused on
development of state of
the art tech to improve
efficiencies and seek
advances in products.

Human Resource
Management

Marketing

New initiatives to
provide growth
opportunities within
organization and stem
attrition

Immense focus on
increasing brand
awareness through
associations and
sponsorships

Rollout of Employee
Value Proposition and
Career Portal Platform

Close monitoring of
usage patterns,
awareness and indices to
draw insights into
consumer behaviour

(UltraTech Annual Report 2011)

Deep pockets and

backing by Aditya-Birla
Group allow investment
in Tech development

(UltraTech Annual Report 2011)

Value Chain Analysis Samruddhi

Human Resource
Management

Technology
Development

Culture of high
performance encouraged

Heavily focused on R&D

to develop innovations in
cost optimization and
environment protection

Pan India presence of

Samruddhi eases
distributional constraints

(Samruddhi Annual Report 200910)

Significant division of
capacity across all major
regions of India

Implementation of
PeopleSoft HRMS,
variable pay plan and job
bands (Samruddhi Annual
Report 2009-10)

Sustainable
development and
alternative methods of
production stressed on

Distribution

Corporate Strategies
UltraTech Cements Ltd.
1

UltraTech Cements aims to prevail over muted

growth by keeping long-term fundamentals and
growth prospects intact (UltraTech Sept. 2013 Business India)

UltraTech has been looking at ramping up capacity

and presence across local markets and regions
through its acquisitions.

Acquisitions have been few and well-paced. The

motives behind these deals are majorly propelled
by intent of gaining market share, access to new
locations and addition of specialty products to the
portfolio.

Export has also been recognized as a thrust area

in the companys strategy for growth. Opportunities
for global acquisitions have also been explored to
this end.

Samruddhi Cements
1

Aggressive growth and immense flexibility

stressed. Aim is to grow faster than the market
(moneycontrol.com)

Continues to focus on increase in market

share and taking marketing initiatives that help
create differentiation

De-merged from Grasim Industries to enable

creation of pure-play cement operation and in
turn increased focus

Merger Motives UltraTech Cement Ltd. (Acquirer)

Size and scale

The merger would make the new entity the largest cement corporation in India
and propel it into the top 10 cement companies in the world (by size)
The move would help UltraTech scale up its operations by virtue of the size of the
two merging entities. 48.8 million TPA of grey cement across 22 plants, 504 MW of
captive thermal power plants and 11.7 million cubic meters of ready mix concrete
across 68 plants.

Geographical
Diversification

The merger would result in pan India presence with facilities covering almost
entire country. UltraTech will become a pan-India player with a 20 per cent market
share.
It will also provide platform to diversify into neighbouring countries

Addition to product
portfolio

UltraTech Cements stresses on possessing a wide portfolio of cement-based

products
Amalgamation with Samruddhi would assure it of new products such as white
cement and wall-care putty

Merger Motives Samruddhi Cement Ltd. (Target)

Availability of raw
materials

Cross-selling

Presence of sizeable limestone reserves to fuel future growth

Access to UltraTechs quarries and raw material reserves which form a major
strength of the company

Synergy expected from cross selling various products - putty/RMC/White cement

alongside mainstream products delivered by UltraTech Cements Ltd.

Enhanced
Shareholder Value

With merger, it will become 'must hold' cement stock in India

Enhanced financial flexibility to help in accelerated growth

Platform for
aggressive growth

Upon effectiveness of the merger, Grasim will retain a strategic and controlling
interest in UltraTech while providing UltraTech flexibility for future fund raising

Pre Merger Scenario

Grasim
Separate cement division
Controlling stake in UltraTech cement

De-merger of Grasim Cement

Cement division of Grasim to be de-merged into Samrudhhi, a
100% subsidiary
Eventual Equity stake in Samrudhhi: 65% Grasim ,35 %
Grasims existing shareholder
Samrudhhi to be listed post demerger

Due Diligence
Economic factors affecting the sector
(2008 2009) Economic slowdown affecting the industry
Drastic fall in demand of cement

Monetary Policy
Aggressive monetary expansion by RBI to spurt up demand, credit
available at low rates

Growth in the sector

Cement sector forecasted to grow at 10% CAGR till FY13, industry
capacity in 2009 not enough to meet demand in future

Technological risks in target

Some of the plants of Samruddhi cement required capital
expenditure (1800 Cr.) to bring them on par with Ultra tech cement

Post Merger Scenario (1/2)

Capacity

UltraTech

Samruddhi

Combined

Million
TPA

23.1

25.7#

48.8

Composite
Plants

No

11

Grinding plants

No

11

White Cement

Million
TPA

0.6

0.6

TPPs

MW

236

268

504

No.

32 Plants

36 Plants

68 Plants

Million
Cu.M

4.99

6.76

11.76

Grey Cement

RMC

Key Investments Subsidiaries

80% Equity in
Lanka

Market Share : Grey

Cement
(Source:CMA)

9%

100% Equity in
Combined
Harish Cements
Investments
Ltd.

10%

# Including grinding mills operation in Q3-FY10

19%

Post Merger Scenario (2/2)

Combined Financials

Highlights of the Restructuring

The shareholders of Samruddhi Cement (SCL),

Grasim's demerged cement business would receive
four shares of UltraTech (UTC) for every seven
shares of SCL
Post-merger of SCL, UTC would be the largest
cement company in India, with 49.4mt capacity
(including white cement) and the 10th largest in the
world.
The merger ratio of 0.57x (UTC:SCL) values SCL at
US$107/ton (at UTC's current market price of
Rs729) as against UTC's current valuation of
US$79/ton (pre-merger).
The deal is marginally favourable to Grasim's
minority shareholders, with economic interest in
cement capacities going up from 29.1mt to 29.4mt.
Post merger, Grasim will own 60.3% stake in UTC.
The appointed date of the merger is 1 July 2010.

Deal Structuring
All stock deal - Consolidation, Non taxable transaction

Term Sheet (1/2)

Consideration
the exchange ratio approved by both boards is 4 (four) equity shares of UltraTech of face value
Rs.10 each for every 7 (seven) equity shares of Samruddhi of face value Rs.5 each.

Ownership
UltraTech will issue 14.95 crore new shares, thereby increasing its equity capital to Rs.
274.20 crore
Ownership in merged company: Grasim: 60.33%, Ultratech minority shareholders:
20.57% & Grasim shareholders: 19.1%

Price

Offer Price per share : Rs 729.40

Total Enterprise Value of Target: Rs 8702.03 Cr (30/09/2009)
Transaction value(not including net debt of target): Rs. 3816.5 Cr
Transaction value (including net debt of Target): Rs 5831.3 Cr

Term Sheet (2/2)

Deal Details

Deal Type: Merger

Acquisition Technique: Internal Reorganization
Appointed date for the merger: July 1, 2010
the merger is to be undertaken through a court-approved scheme of amalgamation under
Sections 391 to 394 of the Companies Act, 1956.

Expected Synergies
The combined entity's PAT will stand 140 per cent higher than the standalone PAT of
UltraTech Cement
At the operating level, there has been a significant saving, particularly in fuel costs.
Combined captive power capacity of UltraTech Cement and Samruddhi Cement will
stand at 504 MW post-merger
The debt-to-equity ratio of the combined entity will be less than 0.5

Organization Issues
Similar underlying culture because of same Parent
A special Merger Implementation Committee was constituted at the
Board level, under the Chairmanship of a Non-Executive Independent
Director for evaluating the consolidation of the cement business as
proposed by Samruddhi Cement Limited (Samruddhi)
No layoffs
Name of Member

No of Meetings

Sitting fees paid(Rs.)

Held

Attended

G.M.Dave

60,000

N.J.Jhaveri

40,000

D.D Rathi

60,000

Post merger integration - Culture

Integration

Assimilation

Separation

De-culturation

TARGET FIRMS MODES OF

ACCULTURATION

Multi-Cultural

Uni-Cultural

Integration

Assimilation

Separation

De-culturation

Related

Not at all

Unrelated

Very much

Degree of Multi-Culturism

Diversification Strategy
Degree of related-ness

Attractive
Not attractive

Perception of attractiveness of
the acquirer

How much does the acquired firm value

preservation of its own culture?

ACQUIRER FIRMS MODES OF

ACCULTURATION

An agreement appears to exist in the mode of acculturation assimilation among both target
and acquirer firms.

A Successful Deal
The merger will achieve the group's objective of consolidating
its cement business into a single entity, thereby creating a
platform that will help in pursuing aggressive growth going
forward.

The deal made the company 10th largest in the world and largest in India
Company got stronger hold on distributors because of its market size
Pricing in cement industry could now be dictated by the company
Pan-India presence enabled faster service, wider distribution and low cost
INVESTORS CONFIDENCE
Share price increased by over 57% in next two years, currently higher by 128% when compared to 15 Nov, 2009

Source: The Hindu, moneycontrol.com

Financially the Company Took a Hit

4.00%
3.00%
2.00%
1.00%

BSE return

0.00%

Ultratech return

-1.00%
-2.00%
-3.00%

Market Reactions

Source: ultratechcement.com

Six Month Later

Profit margins hit due to oversupply in short term
Economic slowdown affected the off take of cement in South India, which accounted for 33% of sales
Raw materials cost rose by over 12%, while price of cement remained flat
Company faced acute shortage of wagons
Transportation cost rose by over 10%
Huge capital expenditure to the tune of Rs 10,000 Cr planned between 2009-2012
Company continued on acquisition spree ETA star cement

Analysis of Market Reaction

Assumptions and Calculations
A clean period -40 day to 240 day was chosen to calculate the Alpha and Beta of the stock using regression analysis
Predicted returns were then calculated for the period of -10 day to +10 day
Predicted return = Alpha + Beta * Market return
Difference between Actual return and Predicted return was calculated
The mean of difference turned out to be zero

The results obtained from T test performed on Actual returns vs. Predicted returns yielded the
following:
Time period

P(T<=t) one-tail

P(T<=t) two-tail

- 10 day to +10 day

0.471893135

0.943786271

- 5 day to +5 day

0.422809

0.845618001

- 3 day to +3 day

0.25882055

0.517641101

Remark
Cannot reject null hypothesis because
p>0.05
Cannot reject null hypothesis because
p>0.05
Cannot reject null hypothesis because
p>0.05

Inference
There was no significant effect on the share price as a result of announcement by the company of acquisition

Unique Aspect of the Deal (1/2)

Largest deal in the sector in terms of value

Highest ratio of enterprise value to sales

Highest ratio of deal value to sales

Date
Target Name Acquiror
Ratio of
Date
Target
Acquiror Ratio of
Value of Value
Name
Enterprise
Announce Name
Name
Deal
Transacti inc. Net Announced
Value to
d
Value to
on
Debt
Sales
Sales
($mil) of Target
10/14/2005 Everest
Everest
.996 11/15/20 Andhra Jaypee
6.990
($Mil)
Industries Finvest(India
11 Cements Developm
15/11/200 Samrudd UltraTec
100.00
100.0 826.443 1,262.71
Ltd
)Pvt Ltd
Ltd
ent Corp
9 hi
h
5
Ltd
01/31/2007 Vinay
Investor
1.160
Cement Cement
Cements Ltd Group
01/31/20 Vinay
Investor
1.852
Ltd
Ltd
07 Cements Group
10/06/2010 Binani
Binani
1.390
09/11/201 Jaypee UltraTec
100.00
100.0 600.704 600.704
Ltd
Cement Ltd Industries
3 Cement- h
Ltd
10/16/20 Everest Everest
1.368
Cement Cement
05 Industries Finvest(In
10/03/2009 Samruddhi UltraTech
2.075
Unit(2) Ltd
Ltd
dia)Pvt Ltd
Cement Ltd Cement Ltd
10/06/201 Binani
Binani
25.11
95.0 96.441 96.441
10/14/20 Everest Everest
.996
Highest ratio of enterprise value to Net
0 Cement Industrie
05 Industries Finvest(In
Ltd
s Ltd
Income
Ltd
dia)Pvt Ltd
05/09/200 Indorama Mysore
100.00
100.0 41.194 41.194 Date
Target Name Acquiror
Ratio of
10/03/20 Samruddh UltraTech
.910
8 Cement Cements
Announced
Name
Enterprise
09 i Cement Cement
Ltd
Ltd
Value to
Ltd
Ltd
10/14/200 Everest Everest
50.00
50.0 22.173 22.173
Net
10/06/20 Binani
Binani
.627
5 Industries Finvest(I
Income
10 Cement Industries
Ltd
ndia)Pvt
01/31/2007 Vinay
Investor
8.145
Ltd
Ltd
Ltd
Cements Ltd Group
In order of Value of Transaction; Target Industry: Stone, Clay, Glass and 10/06/2010 Binani
Binani
10.739
Concrete products; Target Short Business: Cement and related
Cement Ltd Industries
Ltd
10/03/2009 Samruddhi UltraTech
16.991
Cement Ltd Cement Ltd
Date
Target
Announce Name
d

Acquirer % of
Name Shares
Acq.

%
Owned
After
Transaction

Source Database: Special Mergers Sector, SDC

Unique Aspects of the Deal (2/2)

Grasim didnt Merge Cement Biz with UltraTech
D Muthukumaran, Head Group Corporate Finance of AV Birla Group:
The company did not directly sell the cement business to UltraTech, its wholly-owned subsidiary, as it
would have involved huge taxation. Even if we find a solution for the tax issue, the shareholders of
Grasim will not get direct exposure in the eventual cement company
Restructuring

Operating Efficiency

All-India presence

Grasim and UltraTech shareholders

to have direct holding in the
cement company
Deal gives financial flexibility to
grow faster
Post merger will support UltraTech
to maintain its credit rating

The merged entity becomes among

the more efficient cement
producers in the country.
For FY-10, Grasim Industries'
standalone numbers showed net
profit margin improve by four
percentage points to 19 per cent.
The combined entity's PAT stands
140 per cent higher than the
standalone PAT of UltraTech
Cement

UltraTech Cement, which was a

predominant player in the West
and southern market, gained
access to markets of the North
after its merger with Samruddhi
Cement.
UltraTech Cement got close to 20
per cent share of the grey cement
market in India and becomes single
largest cement manufacturer in the
country with an all-India presence

Thank You