Today is the day when much of the drama over the auction of 9.4 per cent of ACC shares ? owned by notified parties in the 1992 stocks scam ? will unfold. While similar auctions for other holdings have taken place earlier, this time, there?s enormous hype surrounding the sale. After all, ACC is no ordinary company. And 9.4 per cent in ACC is no ordinary holding.
The ACC share auction brings to the forefront a host of issues, ranging from corporate governance to consolidation in the cement sector. Both the markets and India Inc are busy discussing the impact of a winning bid for these auctioned shares on the future of ACC and, indeed, the cement industry. Would a multinational bid for these shares? Would the cash-flush Life Insurance Corporation put in an aggressive bid in line with its new image of a Big Bull among institutions? But most important has been the speculation relating to what Gujarat Ambuja Cements Ltd (GACL), which holds a strategic 14.43 per cent holding in ACC, would do.
GACL has been sitting with its 14.43 per cent holding in ACC for about four years now, and the holding has been constant despite regular speculation of an imminent open offer. Many have even questioned why it refuses to increase stake in the company despite being perilously close to the Sebi trigger of 15 per cent for an open offer. GACL?s answer is that it does not intend to control ACC, but merely draw synergies from it. With ACC?s 16 million tonne capacity and its own 13 mt, GACL and ACC present a formidable force in the cement sector. A 14.43 per cent holding makes GACL a ?serious? strategic ally for ACC.
With the Kumar Birla acquisition of Larsen & Toubro?s cement business recently, the Birla group has become the largest player in the cement business, and the ACC-GACL alliance becomes, therefore, a significant second force in the 140 mt-plus industry. Some cement players even feel holding strategic stakes in each others? companies may be a good idea and an important step towards consolidation. After all, even global airlines have resorted to alliances for mutual benefit.
With the imminent sale of the 9.4 per cent ACC stake, what could be the options before GACL? If an FI gets the stake, there are no problems for GACL, and things pretty much continue as they have been. With the domestic cement sector clearly polarised between the Birla group (including L&T) on the one hand and ACC-GACL on the other, with the rest being much smaller in size, a domestic cement major bidding for the holding appears unlikely. The problem will only arise when a multinational cement major enters the picture. Even there, GACL will be able to take advantage of its 14 per cent stake and make its presence felt if the ACC board were to discuss a unanimous no-objection move for the new buyer.
All this, in effect, means that despite all the hype about the sale of the tainted ACC stake, the GACL camp may in fact be surprisingly comfortable in the present situation, and far from panicky. Those tracking GACL are of the view that had the company wanted control of ACC, they could have done it much earlier, and didn?t need to wait for this auction, particularly now that ACC?s stock price is around Rs 210. The stock had, at one stage, dipped below Rs 100!
This issue also brings to the fore the issue of shareholding versus growth. Is a higher shareholding a must for growth of a company? A section of CEOs I spoke to seem to feel that ideally, the level of stakeholding should be segregated from the objective of growing the company. In other words, if a decision is to be taken which may dilute the promoters? holding but lead to the strengthening of the company, good governance requires that the decision be taken. Simply because, over time, that decision will increase the value of the promoter shareholding as the company grows. A concept which could be applied to ACC and the GACL shareholding in it. Clearly, for GACL, October 8 may end up being just another ordinary day.