Displaying items by tag: Assets

This week saw Lafarge and Holcim announce a list of proposed asset divestments following months of research by a Divestment Committee. The mass divestment is planned so that competition authorities around the world can approve the proposed Euro40bn merger of equals to produce LafargeHolcim. When the merger was initially proposed on 7 April 2014, Lafarge and Holcim estimated that some Euro5bn of asset disposals would be necessary and they are already well on their way.

Europe is facing the brunt of asset divestments, as this is where the companies have the largest market overlap. Holcim plans to sell all of its assets in Hungary and Serbia, while Lafarge will sell all of its assets in Germany, Romania and the UK (with one possible cement plant exception). In Austria, Lafarge has opted to divest its Mannersdorf cement plant, while in France it would sell its Reunion Island assets (excluding its shareholding in Ciments de Bourbon). Holcim plans to sell all of its assets in France except for its Altkirch cement plant and aggregates and ready-mix sites in the Alsace Region.

Elsewhere in the world, Holcim plans to sell all of its assets in Canada and Mauritius. In the Philippines the companies plan to combine the operations of Lafarge Republic Inc and Holcim Philippines Inc and to divest Lafarge's Bulacan, Norzagaray and Iligan plants. In Brazil, where Lafarge and Holcim both have a significant presence, the companies plan to announce their intentions after collaboration with CADE, the country's competition authority. There is little market overlap in most of Asia and the Middle East: Lafarge's assets in Malaysia and Syria complement Holcim's strong presence in India and Indonesia.

So far, Lafarge has consolidated its African operations by establishing Lafarge Africa and selling its assets in Ecuador. Holcim has been granted approval from the European Competition Commission to purchase Cemex West in Germany and, most recently, Lafarge has announced that it intends to buy out its joint venture partner, Anglo American, from Lafarge Tarmac in order to sell the entire business.

While the asset divestment list shows good will to global competition authorities, there remains no guarantee that Lafarge and Holcim will not need to divest even more assets. However, by nominating such a large number of divestments in the first instance, the companies have shown willing to cooperate with anti-monopoly measures, potentially easing the path of the LafargeHolcim mega-merger.

Cemex's decision to head deeper into eastern Europe as part of the Cemex-Holcim asset swap announced this week suggests some nerve. Cement production levels started to fall in the region from 2012, according to Cembureau figures, with continued problems reported so far by the multinational cement producers in 2013. Cemex seems likely to lose money from the start with its new assets in the Czech Republic.

In more detail, Cemex will acquire all of Holcim's assets in the Czech Republic, which include a 1.1Mt/yr cement plant, four aggregates quarries and 17 ready-mix plants. In return Holcim will give Cemex Euro70m and Cemex will give Holcim its assets in western Germany including one cement plant and two grinding mills that encompass a total capacity of 2.5Mt/yr, one slag granulator, 22 aggregates quarries and 79 ready-mix plants.

Cemex must believe that it can wait out the recovery of the construction sector in eastern Europe or make savings from having a more easterly spread of assets. Certainly Cemex said in its press release on the asset swap that its earnings before interest, tax, depreciation and amortisation (EBITDA) would start to rise from US$20m to US$30m from 2014.

The question for the buyers at Cemex who considered this deal is whether the construction market has bottomed out in the Czech Republic yet. According to World Bank figures, following the 2008 financial crisis Czech Gross Domestic Product (GDP) fell to a low of US$197bn in 2009, rose again until 2011 but then fell to US$196bn in 2012. Currently the Czech National Bank is anticipating a further fall in growth in 2013. Meanwhile, data from a third quarter 2013 Czech construction sector analysis by CEEC Research reported that a drop of at least 4.7% was expected in 2013 with a follow-on decline of 2.7% in 2014.

Possibly one deal-maker for Cemex was the prospect of combined operations with Holcim in Spain across cement, aggregates and ready-mix. Similar to the Lafarge-Tarmac joint-venture in the UK, the move offers reduced risk in a declining western European market. How the Spanish competition authorities will respond remains to be seen. Elsewhere on the continent this week the decision by the Belgian Competition Council to fine the Belgian cement sector shows an example of behaviour the Spanish authorities will want to avoid.