Dealmaker: Bomi Daruwala, Senior Partner, Vaish Associates
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Dealmaker: Bomi Daruwala, Senior Partner, Vaish Associates

Pallavi Saluja

Bar & Bench recognizes Bomi Daruwala, Senior Partner at Vaish Associates, as the Dealmaker of the fortnight for his role in the sale of the Gujarat cement plants of Jaypee Cements to UltraTech Cement for Rs. 3,800 crore ($590 million), one of the largest domestic M&A deals of recent times. We understand that the transaction was complex and involved several regulatory and commercial issues. Daruwala and his team provided valuable legal advice to their client with regard to structuring the deal.

The Deal

UltraTech Cement has agreed to buy the Gujarat cement-making unit of Jaypee Cement Corp. Ltd (JCCL), a subsidiary of debt-laden Jaiprakash Associates Ltd (JAL), for an enterprise value of Rs. 3,800 crore besides the actual net working capital at closing.

UltraTech will take over all the assets and the liabilities of the Gujarat cement plants at closing and the net amount of enterprise value less liabilities taken over will be the consideration. Such consideration will be discharged by allotment of equity shares of UltraTech to the shareholders of JCCL, subject to a maximum value of such equity shares not exceeding Rs. 150 crore.

Other lawyers on the deal from Vaish Associates included Mumbai Partner Martand Singh along with Principal Associate Tushar Shah and Senior Associate Yatin Narang.

Amarchand Mangaldas advised UltraTech with a team led by Mumbai Managing Partner Cyril Shroff along with Corporate Partner Tushar Mavani. Amarchand’s Competition Law Partner, Nisha Kaur Uberoi was advising on the competition law aspects.

Bar & Bench spoke to Bomi Daruwala on the transaction, the impact of the deal on cement market and current M&A trends.

Dealmaker: An introduction

Bomi Daruwala heads the Mumbai office of Vaish Associates and has been associated with the firm since 1988. Primarily a transactional lawyer, Bomi specializes in mergers & acquisitions, restructuring of business, asset & share purchase deals, takeovers, divestitures, securities offerings, structuring of complex debt and equity investments and general corporate advisory.

About the deal

Bomi Daruwala: Jaypee Cement Corporation Limited (JCCL), a wholly owned subsidiary of Jaiprakash Associates Limited (JAL) has agreed to divest its existing 4.8 MTPA Gujarat Cement Unit, comprising of an integrated cement unit at Sewagram and a grinding unit at Wanakbori, to Ultratech Cement Limited by way of court sanctioned demerger, involving the Bombay High Court and Allahabad High Court.

Role on the deal

Vaish Associates acted as the seller’s counsel in the instant deal, advising both JCCL as well as JAL, its parent.

Challenges during the transaction

BD: Being two large players in the same field, careful structuring was required to ensure that all requisite consents will be applied for/taken from the relevant regulatory bodies in a transparent as well as timely manner.

Impact of this deal on the cement market. Do you see more consolidation taking place?

BD: To the best of our understanding, the instant deal is a mutually beneficial transaction for both parties. On one hand, it enables the seller to unlock value of its assets, as well as helps the seller to deleverage its balance sheet, including significantly reduce its debt and interest outgo. On the other, it enables purchaser to consolidate its operations in Gujarat, helping it derive significant synergies in areas of manufacturing and distribution, logistics, etc.

As regards the market, it is anticipated that the deal should have a beneficial impact on the markets as well as lead to creation of efficiencies through economies of scale. It will enhance the financial robustness of the seller, which continues to remain a very significant player within the cement sector in India.

One does notice an ongoing trend of consolidation within the cement industry and it is likely to remain so in the medium to long term. In times of slow markets, it has been seen that non-specialised players tend to exit as a higher expertise is required to remain profitable. Furthermore, the cost of money also plays a role in such exits, not to forget that merger/acquisition is the quickest way to create or ramp up capacity in new markets. In the current regulatory situation, procurement of raw materials resources, licenses, etc. tends to be a very long drawn process. The last point though, is equally applicable to both foreign and domestic players.

M&A trends looking at the current market scenario

BD: I expect M&A transactions to remain subdued over the next year or so, with this year being the run-up to the [parliamentary] elections. In addition, the M&A transactions are also getting affected by the volatile global economic environment, liquidity concerns, competition from other investment destinations chasing the same global investor funds, etc.

Of course, this will not stop transactions happening for strategic objectives or where investors see good value. Still, in my experience, this year appears to be better as compared to the last year and we expect a more resurgent market post the elections.

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