29032968 the Takeover of Raasi Cement

8/4/2019 29032968 the Takeover of Raasi Cement

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THE TAKEOVER OF RAASI

CEMENT BY INDIA CEMENT

SUBMITTED BYJAKANATHAN

SYED MOHAMMAD FAIZANGOPINATH

VIGNESHWARAN

ARUNAGIRI

SENTHIL


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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 isnurturing 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 takingover 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

Takeover is a transaction whereby a person (individual, groupof individuals or company) acquires control over the assets ofthe company either:

- directly by becoming the owner of those assets; or

- indirectly by obtaining control of the management of thecompany

Take Over taking over the control of management.

Takeover bids may be classified as under:

1) Hostile takeover

2) Friendly takeover

3) Bailout takeover


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Cont.,

Hostile takeover

The method of trying to take the control of the companywithout the knowledge of the existing management is known asHostile takeover.

Bailout takeover

Taking over of the management of such weak companies fornurturing them back in normal activities by a company havingexpertise and resources is known as Bailout takeover.

Friendly takeover

A friendly corporate body or group of companies may come tothe rescue by buying shares of the company in the open market

and/or by pumping resources to help the management.


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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 isknown as hostile takeover.

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

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

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

Promoters of RCL sold out its 32% stake to ICL in a negotiated dealduring 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 sharefrom 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 asby 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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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 trulyKing, 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 throughcontinuous 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.


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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

SVCLs 1mtpa)

Increase in market value.

Opportunities :

Expansion

Demand and supply can be

coup up

Weakness :

Burden of debt.

Have to maintain morefragmented Acquired Cement

Industries.

Threats :

Raasi had sold 39.5% share of

SVCL to some promoter'sgroup companies, is

SEBI,BIFR helps to get back ?


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Legal Issues made by Raasi

SVCL (sri vishnu cement limited ) which was thesubsidiary of RCL was transferred by Raju to nine of hisassociates after the purchase by ICL of Rajus shares inRCL. This was violation of 23 of takeover code which

prohibits the target company from transferring its assetsafter a public announcement has been made by theacquirer to make open offers for purchase of shares frompublic.

Raju tried to increase his stake more than 90%,so onlyeven after giving to ICL he can manage to have stackmore 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 insynergy.

In order to realize the synergy the leverage should be

brought down and cash flow should be generated.

Existing distribution infrastructure of Raasi helps ICLto 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 RaasiYEARS 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 productioncapacity 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 itsproduction in Kerala, Andra pradesh and TamilNadu, all this is due to capacity improved by

acquisition of cement companies like Raasicements.

29032968 the Takeover of Raasi Cement

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