Adani open offer for Ambuja and ACC gets tepid response

The Rs31,000 crore open offer by Adani for the shares of Ambuja and ACC got a relatively tepid response from the shareholders, despite the hype build around the deal. It may be recollected that the Adani group had made an overall investment bid of $10.5 billion to get a majority stake in Ambuja Cement and ACC. This included the initial stake buy from Holcim as well as the subsequent open offer. However, the response to the open offer has been fairly timid, possibly due to the open offer price being much lower than market price.

Let us look at the case of ACC first. The Adani group had offered to buy a total of 4.895 crore shares of ACC, which would be equivalent to 26% of the outstanding capital of the company. However, against the total of 4.895 crore shares of ACC that Adani had bid for, it got tender offer for only just about 40.61 lakh shares. The open offer has already closed on Friday, the 09th of September.  This amounts to just about 8.3% of the number of shares that were supposed to be tendered. At an offer price of Rs 2,300, the buy size would be Rs934 crore.

Let us now turn to how the open offer response looked like in the case of Ambuja Cements. Adani had offered to buy a total of 51.63 crore shares of Ambuja Cements through the open offer for another 26% of the company. However, just about 7.27 lakh shares were tendered by the existing shareholders, which just about represents 0.14% of the total offer size made by Adani group. In the case of Ambuja Cements, the actual tender offer price was far lower than the current market price and that could have been the reason for the tepid response.

Experts believe that considering the much higher price of the stock in the market, it made more sense for people to sell the shares in the open market. The stock price of Ambuja was around Rs454, against the open offer price of just about Rs385. Most investors did not see any logic in tendering these shares while it could be sold in the open market at a premium. However, many long term investors in India have been loyal holders of ACC and Ambuja for over 30 years and this nostalgia also coaxed them to go slow on tendering the shares.

The open offer for the shares of both the companies were statutorily mandated after Adani group had acquired 63.1% stake in Ambuja Cement and 4.48% stake in ACC from Holcim. This purchase had also given them access to the 50.05% stake held by Ambuja Cement in ACC. Holcim is now out of the way and the open offer is a SEBI requirement that Adani has to fulfil. Adani is desperate to get both the companies under their fold as it would give them access to 790 million TPA of cement capacity, making them second largest in India.

In the last few years, Cement has inevitably emerged as a game of capacity and regional leadership. While Ultratech of the Birla group is way ahead with capacity of nearly 125 million TPA of cement, this deal directly catapult Adani to the second spot in India, ahead of Shree Cements. In a sense, both ACC and Ambuja had become defensive bets on the Indian cement space because the big capacity story in cement in the last 20 years was aggressively captured by Ultratech and Shree Cements. That equation could not change with Adani entering the fray with his penchant for aggression.