Mumbai: Cement makers ACC Ltd and Ambuja Cements Ltd, both part of the LafargeHolcim Group, on Friday said their boards had agreed to start evaluating a potential merger between the two “with a view to combine the strengths of both businesses".

A special committee, comprising largely of independent directors, has been constituted to begin the evaluation, ACC and Ambuja Cements said in separate notes.

Both ACC and Ambuja are part of conglomerate LafargeHolcim and a merger between the two has been long speculated about. Ambuja Cement holds about a 50% stake in ACC and while LafargeHolcim holds a 4.48% stake through unit Holderind Investments Ltd, according to data from Bloomberg. Holderind holds about 63.11% in Ambuja Cement.

If the merger materializes, it will be the latest in a string of large mergers and acquisitions (M&As) in the Indian cement sector, which has in the past year seen Jaypee Group agree to sell its cement assets to larger rival UltraTech Cement Ltd, and a merger between Dalmia Bharat Ltd and OCL India Ltd.

In January, JSW Cement Ltd said it would buy the entire promoter holding in Shiva Cement Ltd.

Last year, Reliance Infrastructure Ltd agreed to sell its cement assets to Birla Corp. Ltd for Rs4,800 crore in order to reduce debt.

A potential merger between ACC and Ambuja has long been expected, according to Nitin Bhasin, head of research at Ambit Capital Pvt. Ltd.

“A merger of ACC and Ambuja can help LafargeHolcim streamline its presence in India and achieve some operational benefits or savings," Bhasin said.

ACC said in its statement that its board will decide on a merger only after receiving recommendation from the special committee and the audit committee.

ACC, with a capacity of 30.7 million tonnes (mt), has about 7,800 employees and runs 17 cement manufacturing sites and 50 concrete plants in India. Ambuja Cements has a capacity of 29.65 mt with five integrated cement manufacturing plants and eight cement grinding units across the country.

ACC, Ambuja, UltraTech Cement Ltd and Dalmia Cement Ltd command about 40% of India’s total cement market, which is estimated to have a capacity of more than 420 mt.

ACC is the second largest cement company in India, with about 10% market share.

For the year ended December 2016, Ambuja Cements reported a consolidated revenue of Rs20,093.95 crore, while ACC reported consolidated revenue of Rs11,167.55 crore.

Ambuja Cement, the third largest cement maker in India, has added only 1.7 mt capacity in the past three years, resulting in its market share declining from 8.5% in 2013 to 7.4% in 2016, according to a 2 May report by JM Financial.

The company, however, is one of the most profitable cement makers, with the lowest cost of production, the report said.

France’s Lafarge and Holcim of Switzerland merged in July 2015 to form the world’s largest cement firm, LafargeHolcim.

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