Takeover of Raasi Cements by India Cements

Background Contd...

The takeover of Raasi also would help in rationalization of various markets between ICL and Raasi, and interchangeable use of Sankar, Coromandel⁶ and Raasi brand names. Analysts felt that if ICL was indeed interested in Raasi and was buying its stock, then it was probably doing so in the belief that the family, despite Raju's assertion, would sell out. Raju had no sons, but his three sons-in-law were involved with the running of the company, and at least one of them seemed to be interested in selling out.

ICL was no stranger to Raasi. In 1995, one of Raju's sons-in-law sold the 0.68 million shares in his possession (roughly 4 per cent of the company's equity) to Srinivasan, on the understanding that the shares would be bought back in more favourable times.

According to Raju this was done without his knowledge. Since then, ICL had been quietly increasing this stake. The company bought an additional 0.13 million shares in 1996-97 at an average price of Rs 90, taking its stake to around 5%.

When the share dipped to Rs 50 in October 1997, it was an opportune moment for ICL to increase its holdings in Raasi and by late 1997, ICL increased its stake in Raasi to 8%.

Industry Profile

In the late 1990's the Indian cement industry was a highly fragmented one. There were 117 plants belonging to 59 companies spread across the length and breadth of the country, with an installed capacity of 109.97 mtpa.⁷ In the early 1990s, the industry expanded considerably as new plants with large capacities came up.

The success of the economic reforms of the early 1990s was a boost to the expansion plans of the cement companies. However, in the mid and late 1990s, as demand for cement declined, the share prices of most companies fell. In the late 1990s, acquisitions triggered off consolidation in the cement Industry.

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6] Sankar and Coromandel were the cement brands of ICL.

7] As in March 1999.

Case Details

Case Code : BSTR001
Themes: Mergers Acquisition and Takeovers
Case Length : 8 Pages
Period : 1998-1999
Organization : Raasi Cements Sri Vishnu Cements Limited
Pub Date : 2001
Teaching Note : Available
Countries : India
Industry : Construction - Building Materials & Equipment

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