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Arijit De & Abhinaba Das
Mumbai, Dec 8: ACC, Larsen & Toubro and Grasim Industries, the three largest domestic cement-makers, have been shortlisted by Tata Steel for the sale of its cement division, elbowing French major LaFarge out of contention.
The three shortlisted bidders have bid above Rs 400 crore, according to sources familiar with the process, whereas Tata Steel had sought a price of Rs 600 crore for the division. The asking price was split into Rs 540 crore (for the plant and equipment, land, technology, cost of capital and other related costs), and Rs 60 crore to fund a cost overrun, caused by opposition from Jharkhand protestors.
All the bidders, sources said, have refused to compensate Tata Steel for the Rs 60 crore-odd cost overrun as, they have said, the management should be held responsible for it.
Senior Aditya Birla group officials denied that the group had bid above Rs 400 crore for the division. The three suitors have completed their respective due-diligence processes.
French cement giant LaFarge, whichwas planning to get a toehold into the domestic market, has received a setback after losing out in the race to acquire Tata Steel's 1.78-million-tonne cement division.
Sources familiar with bidding process said LaFarge's bid was far lower than the other three contenders. As reported on Monday, an internal study by the Tata group has put the valuation of the cement division at a mere Rs 339 crore. An asking price of Rs 400 crore, the study adds, would be justified if the net cement realisation (NCR) of the Jamshedpur plant was above Rs 1,550 per tonne as against Rs 1,338 now.
It is learnt that Tata Steel does not propose to make a fresh valuation of the division by an independent valuer despite the lower quotes.
Sources added that a formal announcement is likely to be made by the company later this month when its board is scheduled to meet. The board, as advised by merchant bankers Jardine Fleming, will then make a final examination of the shortlisted bidders.
An interesting situation has arisen withthe ACC board approving a hike in the stake of the Tata group in the company to around 20 per cent through two capital issues. This will mean L&T and Grasim will be competing essentially with a Tata Steel associate in the race to acquire Tisco's cement division.
In fact, the Tata Strategic Management Group, a central management think-tank of the Tata group, has already done a cost-benefit analysis earlier this year for ACC on the financial implications of the cement corporation's acquisition of Tata Steel's cement unit. The analysis was undertaken before Tata Steel went for an open-bidding process for the sale of its cement division.
INSIGHT
Think-tank, bidders' views differ
It is logical to believe that if the Tisco cement plant is acquired at a cost higher than Rs 400 crore or even at that price, the stock market may hammer the stock of the successful bidder. Because, according to the Tata Strategic Management Group's study, the price of Rs 400 crore is justied only at net cementrealisation (NCR) of Rs 1,550 a tonne against Rs 1338 now. The longer the time lag for NCR to reach Rs 1,550 a tonne, the lower will be the NPV. The higher price will mean a lower return.
However, there are also reasons for bidding for the unit. For ACC, for example, the reason could be consolidation of its hold in the eastern region and keeping competitors out, while for L&T and Grasim acquiring the unit presents a breakthrough in a predominantly ACC-dominated market. The assumptions of the bidders obviously differ from TSMG's assumptions.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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