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Lucky’s acquisition of ICI at $152.5m

July 31, 2012


KARACHI, July 30: The much-awaited announcement by Yunus Brothers Group (parent company of Lucky Cement) of acquisition of 75.81 per cent shares in ICI Pakistan Limited came up on Monday.

Lucky and ICI in separate notices disclosed the details of the deal to the stock exchanges.

A binding agreement (share purchase agreement) was signed late evening on Friday (July 27) in Amsterdam, by virtue of which ICI Omicron BV, a 100 per cent owned subsidiary of AkzoNobel N.V. Netherlands, sold its entire holding of 70 million shares in ICI Pakistan to a number of companies in Yunus Brothers Group. Besides, Lucky Cement which would pick up 35.7million shares (half of those on offer) other four group companies Yunus Textile, Lucky Textile, Gadoon Textile and Yunus Brothers Pakistan would take up the remaining 50 per cent.

According to ICI notice, “The price is $152.5 million which represents Rs205.10 per share based upon the mid-exchange rate of Rs94.18 to dollar on July 27” and the company went on to say: “Under the terms of agreement the price will be converted to Rupees at the date upon which the purchasers obtain approval from the Competition Commission of Pakistan (CCP) at spot rate of exchange on such day.”

The Lucky Cement made similar announcement and added: “The bid value of this acquisition is $152.5 million (payable in equivalent Pak Rupees) which will be subject to certain adjustments based on lock box mechanism for cash and indebtedness to be ascertained as per the terms of the agreement.”

Mohammad Abid Ganatra, Group director finance, told Dawn that most of the Yunus Brother group companies involved in the acquisition were deleveraged or thinly leveraged.

He said that Lucky Cement did not participate for synergies, but as part of the Group’s strategy of diversification and entry into businesses that are integral to the economic fabric and opportunities in the country.

He said: “The Group intends to invest in the existing businesses of ICI Pakistan for continued growth whilst evaluating additional opportunities to maintain its leadership position”.

Mr Ganatra stressed that the price of ICI stock quoted on the stock market is not a true reflection of the company value; rather it is the “enterprise value” which should be considered of significance and that is much higher than the price of ICI’s stock price quoted on the market.

He said that ICI Pakistan has a rich successful track record and strong corporate brand equity and strong growth potential.

The Yunus Brothers Group is committed to retain existing experienced management as they are the most critical component for the development of the Company. A Lucky Cement press release added: “The financing of this transaction has been planned in a manner to carry minimal debt on the books of these group entities without compromising on their future growth prospects”.

The Lucky-ICI deal was the subject of heated debate at the stock market on Monday and almost all big brokerage houses brought out their research notes on the subject.

One house noted: “With relatively less-leveraged balance sheet, Lucky is planning to take benefit of gearing the transaction debt side amid borrowing the major part from banks”. The company could finance acquisition with 50 per cent debt and 50 per cent from internal sources or it could finance the acquisition with 100 per cent debt.

The total price of the transaction works out to Rs16.8 billion at per share price of Rs206; the latter happens to be 49 per cent higher than the six-month average market price of the ICI stock. Total acquisition cost for Lucky would clock in at Rs8.4 billion.

Along with the acquisition of 70 million shares, the Group also has to buy further 11 million shares from minority shareholders (as per the substantial acquisition of voting shares and takeovers, Ordinance 2002. The acquirer has to buy at least 50 per cent of the free float of 22 million at Rs206, involving Rs2.3 billion. Thus the total deal would be Rs14.5 billion plus Rs2.3 billion, taking the cost to Rs16.8 billion or $177 million, for the Lucky Consortium.

The biggest worry for the investors on Monday was that due to acquisition, Lucky Cement may not pay dividends despite record earning per share for FY12 expected at Rs20.8.

Some analysts suggested that the company may opt to disburse bonus instead of cash. Investors also thought the company may ask shareholders for cash in right issue. For all those explanations and criticisms, its obvious that the market has its own mind. Following the announcement of the deal on Monday, the share in ICI hit the “upper lock”, showing gain of Rs7.90 to close at Rs166.06. The share in Lucky Cement lost Rs5.44 and closed at Rs123.85.