Ambuja Cements managing director, Onne Van Der Weijde, in an interview to CNBC-TV18, explains that a restructuring of operations is more cost-effective and offers more synergies than a full merger.
Weijde adds that deployment of cash does not deplete Ambuja's cash reserves significantly and would still allow for acquistions and expansion.
Below is the edited transcript of the interview on CNBC-TV18
Q: Let me start by asking you, if this was the structure that you had originally envisaged when you entered India and you acquired control over a period of time in two leading cement companies — ACC and Ambuja — was subsidiarisation the first step towards full consolidation?
A: No I don't think so. That was not part of our plans at that time. It was developed over time. But first I would like to explain what we are doing now. We want to create more value by going after synergies.
We have been working with Ambuja and I was previously the CFO of ACC . We have been working with both companies to achieve synergies, cost reductions, implement policies and set up governance structures. A lot has been already implemented. Earnings at Ambuja and ACC are under pressure due to impact on the topline from poor growth in volumes and prices. So, we started to focus on measures to improve the bottomline.
Q: Can you explain why you did not find it appropriate to carry out a full merger at this point in time?
A: We have targeted two specific areas of synergies and I don't think a full merger is needed to achieve that.
Q: So is a merger still an option?
A: It is still an option that we will exercise after synergies in a majority of areas are achieved. Though a full merger may offer synergies, there is also a significant element of cost involved.
Q: Won't implementing synergies also take up a lot of time? In the newly-formed India management committee structure, the management of both ACC and Ambuja will have to work together along with representatives from parent Holcim to arrive at synergies. So why not conduct the merger and then arrive at synergies?
A: The synergies would result in benefits worth Rs 900 crore which is not a small amount.
Q: Wouldn't a merger offer increased benefits?
A: Yes, but a merger might turn out to be a distraction too. It is only after considerable evaluation of the options available that we decided to enable the synergies first.
I would also like to clarify the management structure you mentioned. There are completely two independent management teams and it is only in the targeted areas that the management of both companies will work together. And there will be no participation by representatives from Holcim.
Q: Did you get unanimous approval from the independent directors for this restructuring proposal?
A: Absolutely.
Q: And did your independent directors raise questions?
A: They raised a lot of questions and wanted a lot of explanations.
Q: Did any of your independent directors raise questions about the rationale for Ambuja Cements having to buyback 9.7 percent of its own equity owned by Holcim India?
A: They were some initial questions about whether it was necessary. But when I explained that it was basically a washout and was for historic reasons, they agreed. The shares that we are acquiring will be cancelled.
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