THE TAKEOVER OF RAASI CEMENT BY INDIA CEMENT

SUBMITTED BYAditya M

Amit GShweta Preeti P

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RAASI CEMENT

Raasi cement promoted by B.V.Raju and N P K Raju in 1978. Main Industry is located in Hyderabad. Raasi owned 39.5% stake on Sri Vishnu Cement Ltd. (SVCL) Raasi had a Bailout Takeover on SVCL and Raasi is nurturing

SVCL. Raasi's cement division had a capacity of 1.60 mtpa and it is a

low cost cement producer. Other than cement, the group also had interests in ceramics and

paper B.V.Raju – vice chairman of Raasi cement.

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India cement limited

Indian Cement Ltd., was one of the largest cement producers in south India.

Established in 1946 in Tamilnadu.

Cement constituted approximately 97% of ICL's total revenues.

The process of acquisitions triggered off and started with taking over of Visaka

Cement and CCI's plant at Yerraguntla, (Andhra Pradesh) and Grasim taking over

Dharani Cement and Shri Digvijay Cements...

In early 1998, ICL had six cement plants, three each in Tamil Nadu and Andhra

Pradesh.

ICL entered Andhra Pradesh by acquiring the Chilamakur plant from Coromandel

Fertilizers in 1990.

N.srinivasan – vice chairman of ICL

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SWOT Analysis – Raasi cement

Strength :• Low cost Producer.• Having 39.5% share of SVCL.

Opportunities :•Growth in housing sector - key demand driver

Weakness :•Weak marketing Set-up.•NO sons, only sons-in-law. one of them may sell share to others.

Threats :•Close to a weak colleague always dangerous. •Government intervention to adjust cement prices.

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SWOT Analysis – Indian cement Ltd.

Strength :•One of the largest cement producers in south India.•Cement demand has grown tremendously on par with strong economic growth

Opportunities :• Demand and supply Gap - Additional capacity of 20 million tons per annum will be required to match the demand.•Interchangeable use of names of taken over companies.•39.5% share of SVCL.

Weakness : • Cement Industry is highly Fragmented.•Low – value commodity makes transportation over long distances -uneconomical

Threats :•Raw material prices climbing up •Pakistan and north Indian competitors.

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Takeover RCL – ICL case Hostile takeover - The method of trying to take the control of the company

without the knowledge of the existing management is known as “hostile takeover”.

Tendency of Financial Institutions (FI) to help out Promoters in hostile takeovers

However, in Raasi Cements Limited (RCL) and India Cements Limited (ICL), FIs felt cheated.

ICL in its hostile bid for RCL made an open offer for RCL shares at Rs. 300 per share when the share price was at Rs. 100.

Promoters of RCL sold out its 32% stake to ICL in a negotiated deal during the term of the open offer at price ranging between Rs.200 to Rs. 286 per share

ICL had full control of RCL without having to purchase single share from the institutional investors.

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TAKEN OVER OF RAASI CEMENT BY INDIA CEMENT

Earlier,1995 Srinivasan got 4% share(0.68 m),1996 – increased to

5%,1997 – increased to 8%.

By January 1998, Srinivasan had accumulated 18.03% of Raasi's

equity, both through open market purchases as well as by buying

out the stake of an estranged faction of the Raju family.

In February 1998, Srinivasan announced an open offer to acquire

an additional 20% of Raasi's equity.

He offered Rs. 300 per share, 72.41% above the stock market

price of Rs. 174 on February 26, 1998.

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Cont..

On March 1, 1998, the state-owned APIDC sold its 2.13% stake in Raasi to ICL.

Chennai-based stockbroker, Valampuri & Co., cornered 1.40 % of Raasi's equity

from the market for Srinivasan, taking ICL's stake in Raasi to 21.56%.

If it gets share from V.p. Babaria – stake will increase to 28.56 % and it will

become the Vito-power to the company.

After Negotiation ICL team bought Raasi shares for Rs. 286 a share, i.e.,) Rs. 1.49

billion

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ICL's CEMENT CAPACITIES (EARLY 1998)

Plant Location Capacity (mtpa)

Sankarnagar Tamil Nadu 1.1

Chilamakur Andhra Pradesh 1.3

Dalavoi Tamil Nadu 0.9

Yerranguntla Andhra Pradesh 0.4

Visaka Andhra Pradesh 0.9

Total                                                                        5.2

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Reasons for ICL to takeover Raasi• Demand in Southern region was driven by the housing sector

in Kerala and Tamil Nadu, and large infrastructural developmental work in Andhra Pradesh. During the period 2000-05, demand for cement was expected to grow at 10-12% per annum.

• Therefore, prices were expected to increase by at least 5%-6% p.a. in 2000-05.

• Raasi seemed to be an attractive target for ICL as it was a relatively low cost producer.

• Analysts felt that Raasi failed to capitalize on its low production cost, because of its weak marketing set-up, particularly in Kerala and Tamil Nadu.

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• Raasi tended to dump the cement in its weak markets thereby putting pressure on other players in the region.

• The takeover of Raasi also would help in rationalization of various markets between ICL and Raasi, and interchangeable use of Sankar, Coromandel

and Raasi brand names.• Raju had no sons, but his three sons-in-law were

involved with the running of the company, and at least one of them seemed to be interested in selling out.

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Vision and mission of ICL Vision – A readiness to cultivate a global mindset, effectiveness,

harnessing of human resources to enhance job and knowledge skills of employees, a strong accent on R & D and innovation and a move away from selling, to innovative marketing in recognition of the fact that the Customer is truly King, are some of the strategies that will help corporate to survive and succeed.

Mission - We should be one of the largest Cement Companies in the Country. Our growth in size will be through continuous review of potentials of the existing manufacturing resources, strategic acquisitions and expansions . Product quality, consistency and customer service will be pursued as an act of faith throughout the organization. ICL will continuously strive to enhance its value to its customers, Shareholders and Employees.12

1998 –Takeover Of RAASI CEMENT By INDIA CEMENT

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SWOT ANALYSIS – ICL (After takeover)

Strengths :•Increase in capacity (The addition of Raasi's 2 mtpa and SVCL’s 1mtpa)•Increase in market value.

Opportunities :•Expansion • Demand and supply can be coup up

Weakness :•Burden of debt.•Have to maintain more fragmented Acquired Cement Industries.

Threats :•Raasi had sold 39.5% share of SVCL to some promoter's group companies, is SEBI,BIFR helps to get back ?

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POISON PILL15

A strategy used by corporations to discourage hostile takeovers. With a poison pill, the target company attempts to make its stock less attractive to the acquirer. There are two types of poison pills:

1. A "flip-in" allows existing shareholders (except the acquirer) to buy more shares at a discount.

2. A "flip-over" allows stockholders to buy the acquirer's shares at a discounted price after the merger.

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Pre-Bid Takeover Defense adopted by RCL

Poison pills : Poison pills are any type of defensive maneouvre

which a company might try in order to protect itself against unwanted takeover bids, eg stock issues, special distributions, spin-offs and management pay-outs.

A corporate provision to combat hostile takeovers. The poison pill allows shareholders to acquire additional shares at below market price, thereby increasing the number of shares outstanding and making the takeover prohibitively expensive.

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Legal Issues made by Raasi

SVCL (sri vishnu cement limited ) which was the subsidiary of RCL was transferred by Raju to nine of his associates after the purchase by ICL of Raju’s shares in RCL. This was violation of 23 of takeover code which prohibits the target company from transferring its assets after a public announcement has been made by the acquirer to make open offers for purchase of shares from public.

Raju tried to increase his stake more than 90%,so only even after giving to ICL he can manage to have stack more than 50%.

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Post Takeover Synergy Combined cement capacity of ICL increase up to 8 mtpa. Operating income of ICL-Raasi combine grew by 55% due to

availability of high cement capacity and steep rise in income. The company was able to reduce its freight charges and utilize

resources efficiently. Synergy increase its market share from 15% in 1998 to 25 – 26%

in 1999 Combined synergy To achieve value addition and greater

penetration in southern region. Combined synergy leads to expansion of plants to enhance

productivity and efficiency to produce nearly 10 million tones in 2001.

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Cont..

Burden of debt due to acquisition is very high seen from rising debt equity ratio.

Profitability of the merged firm has gone down from 8% to 4% in 2001 leads to lack of realization in synergy.

In order to realize the synergy the leverage should be brought down and cash flow should be generated.

Existing distribution infrastructure of Raasi helps ICL to leverage this to reduce the freight and other costs.

In oct- ’99 Raasi sold 39.5% stake to ICL.

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Performance of ICL with Raasi

YEARS NUMBER OF SHAREHOLDERS

1995 16399

1996 17155

1997 18037

1998 22226

1999 33195

2000 37682

2001 39304

2002 44343

2003 51030

2004 45441

2005 49882

2006 48256

2007 117751

2008 (MELTDOWN) 72814

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Improvement of Raasi along with ICL

Southern markets have witnessed good demand, tight supply and firm price trends in 2007 and the demand outlook for fiscal 2010 also looks promising.

In the period between fiscal 2010 and fiscal 2011,demand in the region is expected to grow by 13%.

Prices are expected to maintain their upward trend it leads to some of the larger green field projects come on stream.

In December – ’99 ICLSL (along with ICL and Raasi) purchased the remaining shares of SVCL.

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Conclusion

The whole company currently has a production capacity of 9.1Mt/year.

ICL with subsidiary Raasi cement is going well, so the takeover is valuable.

A source said that ICL sells about 90% of its production in Kerala, Andra pradesh and Tamil Nadu, all this is due to capacity improved by acquisition of cement companies like Raasi cements.

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THANK YOU…