The initial round of resolution of bankrupt companies is drawing to a close with some welcome instances of buyers reaping and optimising synergy with the acquired companies. UltraTech, after getting the go-ahead from the Supreme Court to acquire Binani Cement has immediately triggered the integration process, turning it into a wholly-owned subsidiary
The deal gives UltraTech 6.25 million tonne per annum in Rajasthan, inclusive of an integrated cement unit and a split grinding unit at a value of Rs 8,024 crore and BCL's subsidiaries in China and UAE. UltraTech would now witness economies of scale, optimisation of costs, both in manufacturing and logistics, coupled with a wider distribution network. There is also expansion potential in BCL that would offer UltraTech future competitiveness.
Tata Steel's acquisition of Bhushan Steel is another successful example of the resolution of a sound steel capacity otherwise besieged with high debt burden.
The acquirer is now exploiting synergy including cheaper bulk sourcing. The Tata Steel-Bhushan combined is now a 19-million-tonne customer of metallurgical coal in the international markets. Buying that quantity of coal at one go can be done at discounted prices along with cheaper shipping costs through long-term charters while cost savings by rationalising stockyards and distribution points are also being looked into.
But this brings into question what would be the fate of those plants, in cement, steel or any other sector where prospective buyers can't find any synergy. Identifying areas of synergy and cost savings is a very nuanced and specialised activity. Many buyers might just be happy selling off the plants after paying off the bankers a pittance.