ADITYA BIRLA GROUP ACQUIRED COLUMBIAN CHEMICALS COMPANY

Aditya Birla buys US co for $875m


Kumar Mangalam Birla-led Aditya Birla Group has acquired Atlanta-based
Columbian Chemicals Company from One Equity Partners, the merchant banking
arm of JP Morgan Chase, for $875 million (about Rs 4,016 crore), catapulting the
Indian major into the largest global producer of carbon black by volume.

This is Aditya Birla Group's second largest overseas buy after the $6-billion
acquisition of Canada-based aluminum company Novelis in 2007. The deal, which
gives the group's carbon black business a truly global presence, is also the largest
cross-border transaction to have kicked in this calendar year. To be completed by
mid-2011, the deal would bolster AV Birla Group's combined carbon black
capacity to 2 million tonne, toppling Cabot from its dominant position (1.9 million
tonne). Post acquisition, the turnover of the group's carbon black business will go
up from $900 million to $ 2billion. With Aditya Birla Group adding 2.50 lakh tonne
capacity, it is expected to widen the gap with its closest rival. Carbon black is a
fine powder used in the rubber industry for tyres and as pigments for paints and
inks. For the cement-to-telecom Aditya Birla Group, the Columbian acquisition is
part of its larger vision to attain dominance in each of the business the
conglomerate is present in. The Novelis purchase propelled group company,
Hindalco as the world's largest aluminum rolling company. At the same time,
UltraTech Cement is the largest cement maker in the country. "The deal is in line
with our vision to be among the top three players in a given business. The
acquisition of Columbian Chemicals is a perfect fit for Birla Carbon. Their assets
and the expertise of the team will provide a stronger platform for higher growth
and ongoing success,'' said group chairman Kumar Mangalam Birla.

Columbian Chemicals operates 11 plants in nine countries, while Birla Carbon's
operations are spread across four countries with six units. The group's carbon
black business operates under different companies. In Thailand, it is under Thai
Carbon Black, while in Egypt it is under Alexandria Carbon Company. In China, it
operates through Liaoning Birla Carbon Company, while in India it operates as a
division (Hi-Tech Carbon) under Aditya Birla Nuvo.

The group has routed the purchase of Columbian Chemicals through three
companies-Alexandria Carbon Black (41%), Thai Carbon Black (41%) and SKI
Investment (28%), a special purpose vehicle for carbon black. The deal is
completely funded through debt taken from five foreign banks-ANZ, BankAm,
HSBC, RBS and StanChart. "We have taken a fresh debt. The loan has been taken
on a tenure of 5-7 years and will be repaid from the cash flows among the three
companies or refinanced at a later date,'' D Muthukumaran, head, group
corporate finance, AV Birla group, told. The urgency with which the group has
pursued the globalization agenda for carbon black stems from the keenness of
global tyre companies that the group establishes a presence in markets like North
America and Europe. With the automobile market growing at a rapid pace, there
is good demand being generated for tyres as well. Globally, 70% of the carbon
black produced is used in the manufacture of tyres. Nearly 60% of this is
consumed by the three leading tyre makers-Bridgestone, Goodyear and Michelin.
The AV Birla group, which is among the strategic suppliers to the tyre companies,
will get a further boost in its preferred supplier status from the acquisition of
Columbian Chemicals.

"Most of the large tyre companies have operations in North America and
European markets. They would prefer any supplier to supply them in those
markets. Earlier, some of our competitors had that advantage. We didn't have it.
We were earlier a regional supplier and this deal makes us a truly global supplier
to the tyre companies,'' said Santrupt Misra, CEO, Birla Carbon and director, HR,
AV Birla group. As for the tyre industry, there is a growing concern for safety
which have added to the demand for better quality products. This aspect seems
to have gone in AV Birla group's favour.