Mumbai, Feb 23: Kumarmangalam Birla is finally flirting with the spotlight. Following in the footsteps of his illustrious father Aditya Vikram Birla, the scion has completed his first acquisition abroad -- a pulp mill in Canada -- in a bid to exploiting global synergies in an empire carved out by his father across the world.The Aditya Birla group, the world's largest producer of viscose staple fibre (VSF), has acquired AV Cell Inc, a 1,10,000-tonne-per-annum pulp mill in New Brunswick, Canada, jointly with Tembec Inc, a $1.3-billion firm. The acquisition cost is a token one Canadian dollar, but the total initial investment in the joint venture is $24.3 million. The outflow from Grasim will be Rs 7 crore. The joint venture's entire output will be sold to Aditya Birla group firms at prices benchmarked to the widely accepted South African index known as SAAPI. The 1,10,000 tpa unit will provide AV Birla group's Indian flagship Grasim, Thai viscose staple fibre unit Thai Rayon Public Co and Indonesian IndoBharat Rayon with 35,000 tonnes per annum of softwood dissolving grade pulp each.
This will, for the first time, provide an integrated raw material base for the world's largest VSF operation run by the group. This will avoid unnecessary fluctuations in availability and quality, thereby reducing business costs.
"When we think of our group, we think with an international perspective on products in which we are globally competitive in scale: carbon black, in which we are the world's sixth-largest, and VSF, in which we are world leaders," Kumarmangalam Birla told The Financial Express on Monday. He mentioned that cement, for example, was a product whose nature compels the group to think in a national perspective.
"We are often asked if we want to go for acquisitions: this is the pattern we are going to follow in future acquisitions, where our project cell will determine whether the possible options will increase our synergic strengths," Birla said.
He said an internal project cell was examining variousoptions of both intra-group rationalisation and external acquisitions, but nothing had yet crystallised "even close to the stage the pulp mill acquisition has reached".
The group has a combined capacity of 410,000 tonne of VSF, for which the captive capacity of wood pulp was only around 1,30,000 tonne, exposing the group to fluctuations in terms of price and quality for the portion that was outsourced. The new venture will be a substitute for the Rs 650 crore greenfield rayon grade wood pulp project in India that group flagship Grasim Industries had shelved last year.
As compared with the greenfield project, the acquisition works out almost 10 times cheaper, Birla said. The group's contribution (50 per cent) to the $11.2 million equity base of the company will be split equally between Grasim, and the group companies in Thailand and Indonesia. Tembec's equity contribution of $5.6 million includes a notional amount of $1.9 million that will not result in a cash inflow, because this amount is the "sweatequity" valuation of the preliminary work already put in by Tembec on the venture before the AV Birla group was drafted in. The group is also extending a $7.5 million subordinated loan to the venture at a rate of eight per cent. Tembec, the Canadian partner, has considerable experience in turning around sick companies.
The venture will be managed jointly by the two partners. They have four representatives each on the board. While the position of chairman will rotate between the AV Birla group and Tembec, the chief executive officer will be a nominee of Tembec. The chief financial officer will be a Birla nominee.
INSIGHT
Attempt to spread wings
Taking over the Canadian Pulp Mill in Canada jointly with Tembec Inc represents an attempt by the A V Birla group to integrate its businesses across the globe. The three VSF producing companies of the group -- Grasim, Thailand based Thai Rayon and Indo Bharat Rayon, Indonesia will together hold 50 per cent of the stake in the venture. The product,dissolving grade chemical wood pulp, will be shared among all the three. Through the acquisition, the group has achieved a captive raw material source for itself and this will help it to maintain its leadership position in VSF.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
