Strategic acquisition<\/p>\n
The acquisition by state-owned PT Semen Gresik of two other
\nstate cement companies, Semen Padang and Semen Tonasa, last week
\nis a strategic move to help the government better manage the
\ncement market which over the past few years has often puzzled
\nconsumers with questionable price rises.<\/p>\n
The geographical dispersion of the acquired cement plants and
\ntheir better economies of scale after expansion will enable Semen
\nGresik to help the government to prevent a geographically-
\nconcentrated oligopoly in the cement market.<\/p>\n
The acquisition deal will make publicly-listed Semen Gresik
\nthe largest single cement producer with a total capacity of 10.8
\nmillion tons, or about 40 percent of the national capacity, as of
\nnext year. The new capacity will be slightly larger than the 9.8
\nmillion tons currently owned by the Indocement group which is
\ncontrolled by the Salim group. But the state company will further
\nstrengthen its position with a total capacity of almost 18
\nmillion tons when its four expansion units currently under
\nconstruction come on stream in 1997 and 1998.<\/p>\n
The acquisition also will put Semen Gresik in a better
\nposition to capitalize on the rapidly growing market because the
\nstate company now has plants in the largest cement-consuming
\ncenters. Plant location counts a great deal, especially for such
\na commodity as cement whose freight costs take up a big portion
\nof the sales price.<\/p>\n
Semen Gresik in East Java, which is expanding its annual
\ncapacity from 4.1 million tons at present to 8.7 million tons in
\n1998, is well placed to cover Java. This island alone now
\naccounts for almost 70 percent of the cement market volume.<\/p>\n
Semen Andalas (Padang) in West Sumatra, which is increasing
\nits annual capacity from three million tons to 5.4 million tons
\nin 1998, is well positioned to supply Sumatra that at present
\naccounts for 18 percent of the total domestic market.<\/p>\n
Semen Tonasa in South Sulawesi with an annual capacity of 3.5
\nmillion tons is close to the eastern region where the market is
\nexpected to grow faster than that in Java as development
\nactivities are accelerated on the least developed eastern
\nislands.<\/p>\n
The way the US$475 million acquisition and capacity expansions
\nwill be financed -- largely through a three-for-one rights issue
\nwhich will raise around $655 million -- will further add to the
\ncompetitive edge of Semen Gresik. The equity financing will save
\nthe company large interest costs.<\/p>\n
Hopefully, as Semen Gresik gradually entrenches its market
\nposition within the next two years, the government will be saved
\nfrom the annual \"headache\" of unusually steep rises in cement
\nprices. That, we think, is the strategic nature of Semen Gresik's
\nacquisition of the two state cement companies.<\/p>\n
We have, though, a footnote regarding the highly commendable
\ntransaction due to the changes in the schedule for Semen Gresik's
\nextraordinary shareholders meeting on the acquisition, which was
\nstarted but not finished last Tuesday. The sudden summons from
\nMinister of Industry Tunky Ariwibowo, which forced Semen Gresik's
\nPresident Fuad Rivai to rush away from his chairmanship of the
\nTuesday meeting to meet with Tunky, raised eyebrows. And Semen
\nGresik's explanations about the reasons for the postponement of
\nthe shareholders meeting until Thursday were not clear and did
\nnot exhibit the kind of transparency which a publicly-listed
\ncompany should show.<\/p>\n
The unusual events, we think, make it quite clear that the
\ngovernment has yet to learn how to manage state companies which
\nare listed on the stock exchanges.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/strategic-acquisition-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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