The Aditya Birla Group has for some time been in talks with the Gaurs, promoters of cement to real estate developer Jaypee Group, to purchase their 9.8 million tonne cement business in Andhra Pradesh and Gujarat. The two are now working out modalities to settle the future liabilities, two people with direct knowledge of the development said.
?There are issues on future liabilities and damages, which both companies need to agree,? one of the two people said. ?Both have more or less agreed on the deal, but need to settle future liabilities,? said the second person.
The Birla Group and the Gaurs have been in negotiations for a while after the latter decided to hive off the cement units in Andhra Pradesh and Gujarat. The negotiations for the Birla Group are being led by OP Puranmalka, managing director, Ultra Tech, and also director of Birla Management Corporation. The Gaurs are being advised by investment banker Barclays Capital. ?We do not comment on speculations,? said Puranmalka.
Jaiprakash Industries spokesperson did not respond to an emailed questionnaire from FE.
?Representation and warranties reflect the existing state of business of a company or factual statement of the company on which the buyer pays the seller,? says a leading lawyer. ?In the event, if any of the representations and warranties are untrue, it will trigger a material breach of contract and the buyer can claim damages from the seller.?
Also, in case of a breach of any of the terms, the buyer can make the seller liable to pay for them.
On June 21, the Competition Commission of India (CCI) ordered 11 cement companies to pay R6,300 crore for cartelisation to keep the prices high. The regulator asked the companies to pay 50% of the average profit of 2010 and 2011.
In this case, the buyer needs to find out from the seller the ultimate liability of the company, which can then be adjusted to the value he pays to the seller, the lawyer said.
The deal will help AB Group?s company Ultra Tech to become number one in Gujarat with a 42% market share.
?The fair price for the cement division can be around $140 a tonne,? says a cement analyst with a domestic brokerage. ?While demand in Andhra Pradesh is muted, there is enough demand in Gujarat.?