THE TAKEOVER OF RAASI CEMENT BY INDIA CEMENT

SUBMITTED BY JAKANATHAN SYED MOHAMMAD FAIZAN GOPINATH VIGNESHWARAN ARUNAGIRI SENTHIL

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.

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

SWOT Analysis – Raasi cementStrength :• 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.

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.

Takeover • “Takeover” is a transaction whereby a person (individual, group of

individuals or company) acquires control over the assets of the company either:- directly by becoming the owner of those assets; or - indirectly by obtaining control of the management of the company

• “Take Over” – taking over the control of management.

• Takeover bids may be classified as under:

1) Hostile takeover2) Friendly takeover3) Bailout takeover

Cont.,• 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”.

• Bailout takeover Taking over of the management of such weak companies for nurturing them back in normal activities by a company having expertise and resources is known as “Bailout takeover”.

• Friendly takeover A friendly corporate body or group of companies may come

to the rescue by buying shares of the company in the open market and/or by pumping resources to help the management.

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.

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.

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

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.

1998 –Takeover Of RAASI CEMENT By INDIA CEMENT

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 ?

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%.

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.

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.

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

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.

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.