Mysore Cement has a cement capacity of 2 million tonnes per annum (tpa) and operations in Karnataka, Madhya Pradesh and Uttar Pradesh. It has been an attractive target for some time as the current owners have not been able to make the operations profitable.
The acquisition will be effected through a fresh infusion of capital into Mysore Cement to acquire a 41.7% stake, as well as a selldown by the Indian owners, the SKBirla group. The latter sale will provide the balance required for Heidelberg to gain control of the company. The transaction value for these two stages is $100 million.
In addition, Heidelberg will have to fork out money to pay for a general offer to Mysore Cement's minority shareholders, in compliance with IndiaÆs takeover code.
"The acquisition of Mysore Cement is in line with our long-term strategy of step-by-step expanding our presence in emerging markets. With its activities in central and southern India, Mysore Cement offers a good starting point for supplying cement to the rapidly developing markets in the western part of India. With the existing grinding plant in Mumbai, our capacity in India will reach about 3.5 million tonnes of cement," says Dr. Bernd Scheifele, Chairman of the Managing Board at Heidelberg.
IndiaÆs cement sector has witnessed a number of M&A deals over the last few years with Lafarge, Holcim and Italcementi all acquiring capacity. Cemex and Heidelberg were the two big names not yet established in the country, although that changed earlier this year when Heidelberg acquired a 50% stake in unlisted Indorama Cement, a 750,000 tpa grinding unit near Mumbai.
At that time, Heidelberg declared its intention to grow the company's business in the South Asian country, terming Indorama an ôentrance gate to India.ö
The importance of India and the size of the opportunity can be gauged by the fact that in 2005 Holcim regained its position as the largest cement producer in the world (which it lost to Lafarge post the Lafarge Blue Circle merger) after completing its India acquisition.
Acquisitions are the preferred entry strategy in the sector due to the importance of proven limestone reserves and the time involved in building greenfield capacity. India is the second largest cement consumer in the world today after China. At an estimated 125kg, India's per capita consumption is one of the lowest in Asia, hence the interest from international majors to set up shop.
Heidelberg was advised by Ambit Corporate Finance and Mysore Cement by SMIFS Capital Markets.