The exchange ratio for Sanghi Industries’ merger with Ambuja Cements is weighted in favor of the Adani group company, but analysts said the merger offers Sanghi shareholders a national brand, a full Indian reach and an opportunity to be part of to create a conglomerate.
Investors were disappointed and Sanghi’s shares fell more than 10 percent in afternoon trading, while Ambuja Cements’ shares were also trading weakly.
On Tuesday, Ambuja Cements announced separate plans to merge Penna Cements and Sanghi with itself. Sanghi shareholders will receive 12 Ambuja shares for every 100 shares.
Penna Cements, which the Adani group acquired for $1.3 billion earlier this year, is the larger entity with an annual operating capacity of 10 million tonnes, with four integrated plans in Andhra Pradesh and Telangana and a milling unit in Maharashtra. It has two plants with a combined capacity of 4 million tonnes, while it has five bulk cement terminals.
Sanghi Industries was acquired by Ambuja in late 2023 for an enterprise value of ₹5,185 crore. With the acquisition, Ambuja expanded its clinker capacity by 6 million tonnes, cement capacity by a further 6 million tonnes, and gained access to 1 billion tonnes of limestone reserves, along with its own jetty and power plant.
“It is a win-win situation for both the Adani group and Sanghi, Penna,” said Kranti Bathini, director of equity strategy at WealthMills Securities. said.
Explanation of share exchange ratio
Regarding the swap ratio, he pointed out that the premium was on Ambuja’s side as it was a larger, national player. “From a regional player, Sanghi will have a national footprint, while the shareholders would be part of a larger group,” he said. This would justify the lopsided share swap. With the merger, Sanghi shareholders would become shareholders of Ambuja Cement.
The move will streamline the organizational structure, simplify compliance requirements and eliminate related party transactions, Investec Bank plc (UK) said in a note on the merger.
It added that it was comforted by Ambuja Cements management reaffirming their growth plans, cost and synergy targets and ongoing initiatives to achieve these targets.
