The Telegraph
Monday , April 7 , 2014
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Cement giants fix merger terms
Lafarge, Holcim to allay fears of control

Paris, April 6 (Reuters): The world’s two largest cement makers, France’s Lafarge and Switzerland’s Holcim, have agreed the terms of a merger that would create a company with a stock market value of around $55 billion, a source close to the situation said on Sunday.

Such a merger, achieved by Holcim buying Lafarge, will be the industry’s biggest-tie-up and create an entity with combined sales of over $40 billion, raising the likelihood it will draw extra scrutiny from global competition watchdogs.

The boards of Lafarge and Holcim approved the proposal on Saturday and are due to announce it on Monday, the source said.

The two groups have already begun to address possible competition concerns that would arise, the source added.

“The boards (of Lafarge and Holcim) met yesterday and approved the proposal,” the source said.

“An official communication is due on Monday.”

Lafarge declined to comment. Holcim was not immediately available for comment.

Both firms are likely to be counting on the support from major shareholders. More than a third of Lafarge stock is owned by two investors who are represented on its board.

The two companies had issued statements on Friday announcing they were in advanced talks to merge, a deal which would help them slash costs, trim debt and better cope with the soaring energy prices and weaker demand that have hurt the sector since the 2008 economic crisis.

Their share-price levels jumped to four-year highs on the news, lifting the entire cement sector.

The terms of the transaction, reported by French newspaper Le Figaro and confirmed by the source, will see Holcim launch a public takeover for Lafarge payable in shares. If successful, the combined entity will be based in Switzerland but will have operational headquarters in Switzerland and France.

Lafarge chief executive officer Bruno Lafont will become the CEO of the combined entity while the chairman will be Swiss.

Holcim and Lafarge are close in size, with the former’s market capitalisation at $30 billion and the latter’s at $25 billion. They each have an enterprise value — which includes debt as well as equity - at around 10 times earnings before interest, tax, depreciation and amortisation.

However, in share-price terms, Lafarge enjoys a more expensive valuation with a price-to-earnings ratio of around 33 versus Holcim’s 20.5. Lafarge’s stock is up 18 per cent this year. Holcim’s is up around 20 per cent.

Both companies feature high-profile billionaire backers. Switzerland’s Thomas Schmidheiny and Filaret Galchev from Russia control a total of 31 per cent of Holcim, while Lafarge’s two biggest shareholders are Groupe Bruxelles Lambert — holding company of Belgium’s Albert Frere — and Egyptian tycoon Nassef Sawiris. .

Any deal is likely to draw scrutiny from global competition watchdogs as a Lafarge-Holcim combination will have a dominant position in both Europe and the US.

Both companies have significant and overlapping capacities in countries such as France, Germany, Spain, the Czech Republic, Romania and Serbia, according to Morningstar analyst Elizabeth Collins.