MUMBAI, DEC 28: Gujarat Ambuja Cements Ltd (GACL) which made two major acquisitions in the last fortnight is tapping the overseas market to finance its takeovers. The board of GACL is meeting on Wednesday to consider a $ 200 million (around Rs 870 crore) issue of global depository receipts (GDRs) or American depository receipts (ADRs).This overseas issue is primarily aimed at financing its acquisition of stakes in DLF Cement and Associated Cement Companies. While the DLF Cement deal will cost the company Rs 350 crore, the buy-out of 7.2 per cent stake in ACC will need Rs 455 crore.This is not the first time that a company is going in for overseas fund mobilisation for takeover financing. Earlier, Satyam Infoway which acquired IndiaWorld in a controversial deal worth Rs 499 crore decided to float its second ADR issue for $ 115 million to finance this takeover. ``It is pertinent to note that both the companies have preferred to tap the foreign investors to finance the takeover. Is it because thesecompanies feel they may not get good response from domestic investors?'' asked a merchant banker who preferred anonymity.For GACL, this will be the second overseas issue. The company had mobilised around $ 80 million in November 1993.Meanwhile, it is understood that GACL is likely to buy out the rest of the Tata holdings in ACC some time next year and then merge both the companies. GACL would not be required to make an open offer to minority shareholders as per Sebi's Substantial Acquisition of Shares and Takeover Regulations. If GACL were required to make an open offer, it would substantially push up the cost of acquisition.GACL bought 7.2 per cent of ACC for Rs 455 crore in a surprise deal announced on December 22. The company has the option to buy the remaining 7.2 per cent Tata holdings at a price to be decided later.A merger obviates the need to raise further funds (apart from the amount required to buy out the balance 7.2 per cent stake) and an equity swap is all that has to be done to bringthe whole of ACC's capacity under GACL's fold. If there is no merger then GACL cannot justify the Rs 900-1,000 crore investment that it will ultimately make in ACC. ACC has, over the last few years, not been making enough profits for GACL to justify the investment in terms of dividend receipts alone.GACL already has the first right of refusal for the Tata group's remaining stake of 7.2 per cent. The agreement between the two, according to well-placed sources, has set a timeframe for GACL to purchase the balance shares by June-July next year.As per the takeover code, there are two triggers for making an open offer. One is the acquisition of more than 15 per cent stake in a listed company and the other is taking management control either by picking up majority stake or otherwise. In this case the threshold limit of 15 per cent will not be crossed as the total holdings of the Tata group in ACC amount to only around 14.4 per cent.In terms of change in control, explanation (ii) of Regulation 12 comes intoplay. It states that ``where any person or persons are given joint control, such control shall not be deemed to be change in control so long as the control given is equal to or less than the control exercised by person(s) presently having control over the company''.Consequent to acquiring 7.2 per cent, GACL has become the co-promoter of ACC along with the Tatas. The quantum of control that GACL can exercise currently cannot be more than what Tatas had exercised earlier for the reason that it has only one nominee on the board (the agreement, it is said, provides for two nominees on the ACC board). Thus no open offer is triggered at this stage.
