Just as the dust had started to settle after the completion of the LafargeHolcim merger on 15 July 2015, HeidelbergCement surprised the global cement industry by announcing that it had acquired a controlling 45% stake in the Italian cement producer Italcementi. The German firm, already the second-largest multinational producer by installed capacity, purchased the stake for Euro10.60/share on 28 July 2015. It has since begun a procedure by which it aims to acquire 100% of the shares in its Italian rival. Here, Global Cement looks at the effects this will have on global, regional and national cement industries.
The global cement industry has undergone significant changes in the past 18 months due to the announcement and completion of the LafargeHolcim mega-merger. In order for the merger to be approved, LafargeHolcim had to sell various assets around the world, the vast majority of which were acquired by Ireland's CRH in August 2015. This drastically altered the list of the Top 10 cement producers (See Figure 1).1
Immediately after the completion of the deal, LafargeHolcim became the world's second-largest cement producer (~340Mt/yr of cement production capacity)1 after China's CNBM (388Mt/yr). When considering only multinational cement producers (i.e.: without Chinese producers), LafargeHolcim is the world's largest cement producer. The second-largest multinational cement producer was Germany-based HeidelbergCement, with 129Mt/yr of cement production capacity.2 It places fifth if one includes Chinese producers.
In fifth place in the list of multinational producers was Italcementi, with 71Mt/yr of cement production capacity. Unbeknownst to the rest of the industry, Italcementi's 45% shareholder Italmobiliare was in the final stages of selling its stake to second-placed HeidelbergCement.
Announcement on 28 July 2015
The announcement by HeidelbergCement that it had acquired Italmobiliare's controlling stake in Italcementi took the cement industry by surprise. HeidelbergCement has initially bought the Italmobiliare stake for Euro1.67bn. The transaction remains subject to approval by competition authorities. HeidelbergCement will next offer the same price for each share held by outstanding investors, once the first transaction has been cleared. The price offered for each share is 61% higher than Italcementi's closing price before the deal was announced, a high but not unheard-of premium that it expects to ensure that it can reach 100% ownership of Italcementi.
The acquisition of Italcementi will expand HeidelbergCement's operations in Mediterranean countries such as Italy and Egypt as well as in France and Belgium, which combined represent Italcementi's largest market.
"With the market recovery gaining traction in southern Europe and the US, it is now the right time for us to accelerate our growth," said HeidelbergCement CEO Bernd Scheifele. The deal gives the group the largest boost in the Middle East and Africa, doubling its market share in that region. The deal will be paid for in cash and is underwritten by Deutsche Bank and Morgan Stanley. Some of the financing will be repaid through asset sales, although none has yet been announced.
Global capacity implications
With this purchase, HeidelbergCement has reinforced its position in second place in the list of multinational cement producers. Italcementi's 71Mt/yr of cement production capacity will bolster HeidelbergCement's capacity from 129Mt/yr to 200Mt/yr, assuming no asset sales. This takes it into a clear second place in the global cement industry, behind LafargeHolcim (~340Mt/yr)1 and ahead of Mexico's Cemex, which has less than half of HeidelbergCement's capacity at just 94Mt/yr.
Figure 2 shows the revised Top 10 cement producers, assuming 100% ownership of Italcementi and no asset sales. The rest of the Top 10 producers shuffle up around the void left by Italcementi.1
Geographical complementarity
The countries in which HeidelbergCement and Italcementi have cement production capacity are shown in Figure 3. There is a high degree of complementarity in their assets. Of 43 countries, only six (Belgium, Canada, China, India, Kazakhstan and the USA) had both HeidelbergCement and Italcementi capacity prior to the deal. Going forward, it is almost certain that no asset sales will be demanded by antitrust authorities in the 37 countries that have representation from only one of the two producers.
Possible implications of overlapping assets
Below follows an analysis of the possible changes in the six countries that have both HeidelbergCement and Italcementi production sites.
Belgium: Italcementi owns Compagnie des Ciments Belges (CCB), which operates a 2Mt/yr plant at Gaurain. Meanwhile, HeidelbergCement operates the CBR Cement plants at Lixhe (1.5Mt/yr) and Antoing (1Mt/yr).3 Combined, this represents 4.5Mt/yr out of 6.2Mt/yr of capacity in the Belgian market. This equals 73% of the market by capacity owned, with LafargeHolcim the only other player in the market.1
Because of this, the deal is likely to attract the attention of the European Commission (EC), especially as Belgium is the authority's own 'back yard.' However, no divestments have yet been requested.
Canada: Italcementi owns the Essroc Canada Inc plant at Picton, Ontario (0.9Mt/yr). This forms part of its much larger North American operations, which includes five plants in the US and Puerto Rico.3
HeidelbergCement operates two plants in Canada through its Lehigh subsidiary, which is also active in the US. Lehigh plants at Edmonton, Alberta (1.6Mt/yr) and Delta, British Columbia (1.3Mt/yr) give it a pre-acquisition Canadian cement capacity of 2.9Mt/yr. Combined with its new Italcementi asset, this rises to a total of 3.8Mt/yr out of 16Mt/yr of capacity in Canada. This is approximately 24% of Canada's cement manufacturing capacity. Given that LafargeHolcim now has 37% of Canadian capacity,1 this is unlikely to attract the attention of the nation's competition authorities.
China: In China, Italcementi is a major shareholder in West China Cement, which has a total capacity of 24Mt/yr. It is also the 100% owner of Fuping Cement in Shaanxi Province. Meanwhile, HeidelbergCement operates as part of China Century Cement and Jidong HeidelbergCement Company.
All of these players are very small in relation to the overall Chinese market, which produced 2.5Bnt of cement in 2014.4 As a result the acquisition will have very little effect on the market. It is very unlikely to attract the attention of the Chinese authorities on competition grounds.
India: Italcementi owns 100% of Zuari Cement, which has 5.2Mt/yr of integrated cement capacity and 1Mt/yr of cement grinding capacity. HeidelbergCement operates two integrated plants in Madhya Pradesh (3.1Mt/yr and 1Mt/yr), one integrated plant in Karnataka (0.6Mt/yr) and two grinding plants that add a further 4.7Mt/yr.
Combining the above capacities gives a total of 15.6Mt/yr in India for HeidelbergCement after the deal, which is slightly over 5% of the >300Mt/yr Indian cement industry by installed capacity.3 This should not be a problem, especially given recent reports that India has as much as 100Mt/yr of cement capacity sitting idle.5
Kazakhstan: As part of the larger acquisition, HeidelbergCement will acquire the 1.2Mt/yr Shymkentcement plant, which is owned by Italcementi.3 Combined with the group's existing plants at Bukhtarma (1.6Mt/yr) and Shetpe (0.8Mt/yr), HeidelbergCement will have a capacity of 11.9Mt/yr in Kazakhstan, becoming the market leader with around 30% installed capacity. It is possible that this expansion by HeidelbergCement could attract the attention of anti-competition authorities in Kazakhstan, although, as elsewhere, no asset sales have yet been stipulated.
USA: Italcementi operates in the United States through its Essroc subsidiary, which has plants in Indiana (0.4Mt/yr), Pennyslvania (2Mt/yr), West Virginia (1.8Mt/yr) and Indiana (1Mt/yr), with a total of 5.2Mt/yr of integrated
cement capacity.3
HeidelbergCement operates via its US subsidiary Lehigh Hanson. With plants in Alabama (0.9Mt/yr), California (0.8Mt/yr, 1.5Mt/yr and 0.8Mt/yr), Indiana (0.8Mt/yr), Iowa (1Mt/yr), Maryland (3.2Mt/yr), New York (0.5Mt/yr), Pennsylvania (0.14Mt/yr) and Texas (0.14Mt/yr and 1.4Mt/yr), Lehigh has a total of 11.2Mt/yr of cement capacity.
Combined with the assets obtained through the Italcementi acquisition, HeidelbergCement now has a US cement capacity of 16.4Mt/yr. This is around 14% of the country's 115Mt/yr capacity. This is enough to take the company up to second in the US behind LafargeHolcim with its 15% share of capacity.1 This means that it has leap-frogged Cemex, which has a 12% share. It is unlikely that asset sales will be required here since HeidelbergCement's share of capacity is smaller than that of LafargeHolcim.
Implications in different global regions
Combined, the formation of LafargeHolcim and the acquisition of Italcementi by HeidelbergCement has had different effects on the distribution of cement capacity in various world regions. The effects in each of Global Cement's four global regions are summarised here.
Europe (excluding Russia): Europe was the continent most affected by the merger of Lafarge and Holcim due to the high degree of overlap between the two former rivals. Before the merger, Lafarge and Holcim shared a combined 71.9Mt/yr of integrated and grinding cement production capacity on the continent.3 After the merger, LafargeHolcim sold around 10.7Mt/yr of capacity to CRH, leaving it with 61.1Mt/yr of European capacity.3
Prior to its acquisition of Italcementi, HeidelbergCement had more than 46.4Mt/yr of cement capacity in Europe, enough to make it the largest producer in Europe by installed capacity. Following the formation of LafargeHolcim it briefly became the second-largest. Now, with the addition of Italcementi's 36Mt/yr, HeidelbergCement has retaken the position of Europe's number one cement producer due to its 82.6Mt/yr of European capacity.
The Americas: The effects of the LafargeHolcim merger and the purchase of Italcementi by HeidelbergCement on the North American cement industry has been covered above in separate sections for Canada and the USA.
Neither HeidelbergCement nor Italcementi have cement assets in Central or South America and so the LafargeHolcim merger is the only recent transaction to have had an effect on the cement market in this area. Across South America, LafargeHolcim has around 39.1Mt/yr of cement capacity, with Brazil the only country that required asset sales prior to the merger. The largest players in the whole of South America are the Brazilian players Votorantim (52.5Mt/yr) and Intercement (46Mt/yr).3
Asia: LafargeHolcim and the newly enlarged HeidelbergCement are both active in India and China, although their shares of these markets are all fairly small relative to the overall sizes of those two markets.
Across the rest of Asia, LafargeHolcim is the largest cement producer, with 137.7Mt/yr of cement capacity (including India). HeidelbergCement was always a fairly minor player in Asia. Its acquisition of Italcementi, with 10.3Mt/yr of capacity, takes HeidelbergCement to 30.2Mt/yr in total across Asia.
Middle East & Africa: The African market has seen a massive transformation due to the LafargeHolcim merger and subsequent HeidelbergCement/Italcementi acquisition.6 Along with the expansion of Dangote Cement and PPC, Africa has gone from having a large number of national and regional markets to being a more homogeneous multi-player market in around two years.
LafargeHolcim controls 47.1Mt/yr of capacity in Africa, ahead of Dangote, which, according to its website, has 31.2Mt/yr of active capacity. With new capacity of at least 4Mt/yr coming on-stream in 2015, Dangote's total capacity will rise to at least 35.2Mt/yr.
After the Italcementi acquisition, HeidelbergCement has an African cement capacity of ~30Mt/yr. It will add strong positions in Morocco and Egypt to its existing strengths on the West African coast.
For its part, South Africa-based PPC currently has around 8Mt/yr of capacity in South Africa, Botswana, Zimbabwe and Ethiopia.
The Middle Eastern cement market has been broadly unaffected by the HeidelbergCement/Italcementi deal. The only market where either producer is present is the UAE, where HeidelbergCement owns 40% of Union Cement Norcem. This plant is one of 11 similarly sized integrated plants in the country. The LafargeHolcim merger also had limited effect on the market, with minor changes in the UAE.
Summary
The LafargeHolcim merger and acquisition of Italcementi by HeidelbergCement has changed the multinational cement industry landscape (Figure 4). There is overlap in notable large markets, including in North America, Russia, China, India, Indonesia and much of Europe. However, the majority of markets has either LafargeHolcim or HeidelbergCement cement production capacity.
LafargeHolcim and HeidelbergCement are present in 27 of the 85 cement manufacturing nations highlighted in Figure 4. LafargeHolcim is present in 40 countries that HeidelbergCement is not present in, predominantly in Central and South America, sub-Saharan Africa, the Middle East and the Far East.
HeidelbergCement is present in 18 countries that LafargeHolcim is not. It has relative strengths in northern Europe and selected markets in western and central Africa, as well as in Kazakhstan and Thailand.
References
1. Edwards, P. 'Global Cement Lafarge-Holcim Merger Report,' May 2015, Pro Global Media Ltd., Epsom, UK. http://www.globalcement.com/reports/lafarge-holcim-merger.
2. Global Cement website, 'HeidelbergCement to buy Italcementi for Euro3.7bn,' 29 July 2015, http://www.globalcement.com/news/item/3931-heidelbergcement-to-buy-italcementi-for-euro3-7bn.
3. Pro Global Media Ltd., 'Global Cement Directory 2015,' December 2014, Epsom, UK.
4. United States Geological Survey, 'Mineral Commodity Summaries 2015,' http://minerals.usgs.gov/minerals/pubs/mcs/2015/mcs2015.pdf.
5. Global Cement website, 'Indian cement industry pessimistic about near future demand,' 9 July 2015, http://www.globalcement.com/news/item/3848-indian-cement-industry-pessimistic-about-near-future-demand.
6. Global Cement website, 'Consolidation in the African cement market,' 5 August 2015, http://www.globalcement.com/news/item/3986-consolidation-in-the-african-cement-market.