The Telegraph
Tuesday , April 8 , 2014
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Holcim, Lafarge agree to merge on equal terms

Lafarge CEO Bruno Lafont (right) and Holcim chairman Rolf Soiron in Paris on Monday. (AFP)

Paris/Zurich, April 7 (Reuters): Switzerland’s Holcim unveiled a deal to buy France’s Lafarge on Monday to create the world’s biggest cement maker, with $44 billion of annual sales, and spark a raft of asset sales worldwide to steer it through antitrust rules.

The partners billed the cement, concrete and aggregates industry’s biggest ever tie-up as a merger of equals, under which Lafarge shareholders receive one Holcim share for every Lafarge held and Holcim investors end up with 53 per cent of the group. The merged business will be based in Switzerland and listed in Zurich and Paris.

As the two biggest listed companies in the sector already, with operations in 90 countries, the pairing expects to face antitrust scrutiny in 15 jurisdictions, and to sell some 5 billion euros of assets to persuade competition regulators to allow the deal.

Analysts said the company could have a market share in excess of 50 per cent in some areas, and that even in countries such as the United States where it would be smaller, monopoly authorities are likely to get involved.

“We believe the final execution ... could take a long time to get through, with all monopoly issues which will occur, and we would not exclude that it might finally fail,” said Helvea analyst Patrick Appenzeller.

Shares in Lafarge rose 2.76 per cent, while shares in Holcim were up 1.68 per cent. News of talks for the deal, creating a group with a combined market value of just under $60 billion, broke on Friday and agreement was struck over the weekend.

At the close of trade on Thursday, one share in Holcim was worth 4.4 per cent more than one in Lafarge.

The deal will help the companies slash costs, trim debt and better cope with the soaring energy prices, tough competition and weaker demand that have hurt the sector since the 2008 economic crisis.

The groups complement each other well geographically, with Lafarge stronger in Africa and Holcim stronger in Latin America, company executives told reporters on a conference call.

Emerging markets such as Latin America and Africa will account for 60 per cent of sales, but no single country will represent more than 10 per cent.

“The new group will offer higher growth and low risk, thus creating more value,” said Lafarge chief executive Bruno Lafont, who will become CEO of LafargeHolcim.

The companies added that they expected total annual savings from joining forces of 1.4 billion euros after three years, thanks to economies of scale, better operational efficiency and lower financing costs.

“Globally, it’s likely that growth over the next 10 years will be lower than in the 10 years before the financial crisis, and one has to adapt correspondingly; this is happening on the cost side,” said Vontobel analyst Panagiotis Spiliopoulos.

Divesting businesses

UBS analysts said there could be antitrust problems to resolve in key markets, including Brazil, Canada, Ecuador, France, the UK, the US, Morocco and the Philippines.

“Given the number of potential issues and required remedies, we expect a lengthy approval process, possibly taking up to two years,” UBS analysts wrote.

Lafarge and Holcim confirmed that they would sell businesses worth 10-15 per cent of the group’s earnings before interest, tax, depreciation and amortisation (EBITDA) to satisfy antitrust concerns — worth about 5 billion euros in total.

Two-thirds of the asset sales would be in Europe, Lafont said on a conference call. The companies also have overlapping business operations in Canada, Brazil, India and China, Lafont said.

“We are going to start discussions with the European Commission and other competition regulators in a constructive spirit,” Lafont said.