KARACHI, July 28: The Lucky Cement acquisition of ICI Pakistan has unleashed a fierce debate among the interested quarters. A senior company official on ‘Umrah’ confirmed on phone on Saturday that the deal was done.

In an earlier restructuring, ICI Limited spun off its paints business into a separate stock market listed entity, AkzolNobel Pakistan. The ICI Omicron, which holds the controlling stake in ICI Pakistan offered 75.81 per cent shares in the remaining company for sale to the highest bidder.

The assets on offer included those of polyester fibre; soda ash; chemicals and a captive power plant. The three bidders known to the public included Nishat Mills; Lucky Cement and a consortium of Fajr Capital of Dubai seeking to buy-out in consortium with ICorp (owned by existing employees of ICI Pakistan).

According to people in the knowledge of things, there were some other undisclosed interested parties, as well.

“What does Lucky Cement get out of buying ICI?” is the main objection of some ordinary shareholders in the cement company. They argue that none of the products produced by the target company would bring synergies to the country’s biggest cement plant.

Yunus Brothers, the parent company of Lucky Cement is one of the largest conglomerates in the country. The group is into textile, cement, construction, real estate, energy and commodity trading.

The ICI’s caustic soda and Polyester Staple Fibre (PSF), the essential materials in the production of textiles, would be useful for the companies within the group’s fold. Besides the Yunus Brother’s flagship Yunus Textile Mills, the ICI acquisition would provide synergies to Fazal Textile, the largest spinning mill in the country and Gadoon Textile.

However, for the benefit of the Group should Lucky Cement provide the wherewithal? If the Lucky Cement has made the bid, it would have to take the cost of financing the acquisition
on its balance sheet. Hamad Aslam, head of research at Lakson Investments argues: “Instead of piling debts, Lucky could have used funds to retire its own loans and pay dividends to shareholders”. The share in ICI currently trades at Rs160.

The analyst calculates that if the bid is considerably higher than the market price of the stock, the earnings of Lucky would take a dip and impact dividends. The widely-traded cement company is expected to announce earning per share at Rs21 and a dividend at Rs10 per share for the period to June 30, 2012, the results to be announced later in the current reporting season.

Lucky would have to seek investor approval at an Extraordinary general meeting. There is likely to be a small shareholders’ uproar.

But a senior banker brushed off those objections as rubbish. He said that Yunus Brothers had the reach into all corners of the globe. “While no one doubts the synergies to the group’s units as well as its capacity to export surplus soda ash and PSF, the Lucky Cement will also reap indirect benefits,” he argues.

He said that the Group enjoyed sound reputation and could seek bank loans at attractive rates. “If the return on investment (ROI) exceeds the financing cost, it is perfectly fair deal for Lucky”, says this banker, adding that the tax authorities allow borrowing for business purposes as admissible expense. This would mean no additional burden on Lucky.

In soda ash, Lucky would now enter into competition with Engro Polymer and Sitara Chemicals.

But most market participants wonder why Mansha pulled out of bidding. Its main company, Nishat Mills withdrew its Public Announcement of Intention (PAoI) for the proposed acquisition of 75.81 per cent stake in ICI only a couple of days before the sell-off.

The announcement for withdrawal by Nishat only said: “The target entity did not provide much synergies to its existing business lines”. Most people in the knowledge of things take that with a pinch of salt. The acquisition would surely have provided synergies to Nishat Mills — the largest textile mill in the country.

Many suspect that the price on offer may have gone too high. “Mr Mansha, thought to be the richest man in Pakistan, is a shrewd businessman,” says an insider.

He pointed to earlier merger and acquisition activities of the man, including those in Maple Leaf, Adamjee Insurance, MCB Bank, Pak Gen Lal Pir. “The Mansha group pulled them off all cheap and added value through its three decades of business acumen”, said the person.

The price of acquisition of ICI shares by Lucky would be interesting information. On that hinges the final verdict of the stakeholders. In accordance with regulations, the acquirer of more than 25 per cent shares in a company has to be make a ‘tender offer’ to other shareholders at either the higher or last six months average price; the book value of the stock or at the price the majority shares are sold to the strategic investor.