Displaying items by tag: Lafarge
Lafarge faces price-fixing penalties
25 April 2014Kenya: Lafarge could face penalties by the Competition Authority of Kenya (CAK) for suspected price-fixing. CAK has accused Lafarge of possible price-fixing owing to its cross-directorship in East African Portland Cement Company (EAPCC) and Bamburi Cement. Lafarge has a 41.7% stake in EAPCC and a 58.9% stake in Bamburi.
"Cross-shareholdings such as these are widely recognised to dampen competition," said CAK. "Even passive shareholdings change the incentives to set prices, as some of the earnings from sales diverted to a rival are now internalised."
CAK is expected to rule in June 2014 as to whether or not Lafarge is culpable of having 'Unwarranted concentration of economic power.' If found guilty, CAK could force Lafarge to sell off its stake in one of the businesses. The Competition Act (No 12 of 2010) also stipulates that Lafarge directors, if found guilty of price fixing, could be forced to pay up to US$115,000 in fines or serve five-year jail terms.
The report comes four months after the Kenyan government, which together with the National Social Security Fund (NSSF) has a controlling stake of 52.3% in EAPCC, accused Lafarge of attempting to destabilise the cement maker to protect its interests in Bamburi. Lafarge countered that its minority stake in EAPCC is insufficient to exert control over the firm. They added that EAPCC is a genuine competitor of Bamburi Cement and that Lafarge stands to lose if it were to destabilise EAPCC.
The director-general of CAK, Kariuki Wang'ombe, stated that the current shareholding structure is not good for fair business. "Cross-directorship could lead to price-fixing since this creates a position where a competitor is privy to the strategic decisions of another competitor. However, it is not conclusive that there is price-fixing going on," said Wang'ombe.
Lafarge to start fracking waste water trial
23 April 2014Canada: The Nova Scotia government has said that hydraulic fracturing waste water is going to be shipped to a Lafarge Canada cement plant in Brookfield for use in cement production. Environment Minister Randy Delorey presented details of the pilot project at a community meeting in Truro.
Atlantic Industrial Services will ship 2Ml of waste water from holding ponds in Debert to Brookfield over a three week period. The water will be used as coolant in the kiln and evaporated at 700°C. Lafarge will test its equipment for residual inorganic materials before and after using the water.
Probe against Lafarge
22 April 2014Bangladesh/India: The Indian compliance adviser/ombudsman (CAO) is assessing a complaint that was filed in January 2014 against Lafarge Surma Cement's land acquisition and limestone quarrying operation close to the villages of Shella and Tynger in Meghalaya state.
The International Finance Corporation (IFC), an arm of the World Bank, partly financed a project with Lafarge Surma Cement for the construction and operation of an integrated cement plant in Bangladesh, which is very close to the border with Meghalaya, India from where the limestone is obtained.
"The complaint raises concerns about the legitimacy of the land acquisition and the process used for the project's limestone quarrying operation close to the villages of Shella and Tynger in Meghalaya," said the CAO. The complainants said that the Khasi indigenous people have been deprived of their land, their livelihood has been impacted and their customary land rights and systems have not been respected.
LafargeHolcim: everyone expects the Spanish acquisition
16 April 2014A lot has happened since the 4 April 2014 announcement that Lafarge and Holcim intend to become LafargeHolcim. There have been several related announcements from around the global cement industry this week, prompting some interesting discussion with respect to the future look of the industry.
Oyak Group, which operates a number of plants in Turkey, appears to be limbering up for LafargeHolcim-based acquisitions in the UK, the EU or Africa, with aims to become a regional player. Meanwhile, Lafarge has pulled out of talks regarding its proposed acquisition of the Cementos Portland Valderrivas (CPV) plant in Vallcarca, Spain, directly citing the merger as the reason for this. We have also seen Colombia's Cementos Argos purchase a grinding plant in French Guiana, which was jointly-owned by Lafarge and Holcim. Announced just a few days after the merger, this asset was presumably jettisoned in order to avoid future issues with local anti-monopoly authorities. Finally, ACC and Ambuja have announced that they would retain their separate identities in India after the merger.
This flurry of announcements is likely to be just the start of frenzied speculation as the competitors of Lafarge and Holcim work out what assets are most likely to be sold. So what about the multinationals, Cemex and HeidelbergCement?
Cemex certainly has cause for concern, weighed down by the debt that it took on in 2007 with the acquisition of Australia's Rinker. It is in a relatively weak position with respect to acquiring any LafargeHolcim divestments. Could it lose market share? HeidelbergCement, by contrast, has long extoled the virtues of its financial efficiency policies and its diverse and forward-looking geographical spread. It could snap up more strategic assets after the merger. While both of these multinationals will be wary of dealing with an enlarged competitor in LafargeHolcim, they have the opportunity to increase their market shares and both will move up one position in the global cement producer rankings.
It is likely to be the smaller players that have the most to gain from the shedding of LafargeHolcim's various assets, especially those that enjoy strong domestic markets and have cash at the ready. Oyak Group has already entered the ring but what if Nigeria's Dangote, Brazil's Votorantim, Colombia's Cementos Argos or Thailand's SCG go on a spending spree? Could one of these rise to become a new global cement multinational?
However, if we can expect a change anywhere it will be in Spain. Following reports in 2012 that Spanish cement production had crashed to its lowest levels since the 1960s jobs have been shed and profits have evaporated. In 2013 Holcim and Cemex agreed to combine all of their operations in Spain. Roughly, according to the Global Cement Directory 2014, cement production capacity in Spain breaks down as follows: CPV (23%), Cemex (18%), Lafarge (11%) and Holcim (10%). Letting the Cemex-Holcim deal happen, followed by the Lafarge-Holcim merger and the CPV Vallcarca purchase, would have led to a major headache for Spain's competition authorities, creating an entity with 43% production market share! Unsurprisingly the first casualty has been the CPV Vallcarca deal. Whatever happens, the next 18 months will be an interesting period for the global cement industry.
Spain: French cement multinational Lafarge has reportedly withdrawn from talks that it was having regarding the acquisition of a Catalonian cement plant from the Spanish sector player Cementos Portland Valderrivas (CPV). The decision was attributed to Lafarge's merger project with Swiss cement maker Holcim, which will most probably lead to the sale of assets in European countries, including Spain.
Lafarge had been negotiating the acquisition of the Vallcarca plant for several months. The plant has a cement capacity of 1.3Mt/yr. Lafarge previously placed a Euro20m offer for the facility, which was rejected by CPV.
Cement monopoly is choking housing sector
15 April 2014Nigeria: Property firm Haven Homes Ltd is worried that the exorbitant price and low availability of cement in Nigeria will slow the pace of housing construction, lamenting that just a few firms have monopolised cement production.
"At the moment only Dangote Cement and Lafarge Cement are consistently producing cement in the entire country. For a population of 160 million that is not good enough, that sort of monopoly makes the product too expensive," said Tayo Sonuga, Haven Homes' managing director and CEO. "Cement is too important to be left to the vagaries of private or public monopoly. You cannot build without cement so the government cannot remain silent about this matter. It calls for urgent action."
Ravena cement plant rebuild to launch amidst merger
10 April 2014US: The rebuilding of Lafarge's Ravena cement plant will move ahead days after the announcement of the Lafarge-Holcim merger. Construction will begin on 11 April 2014.
"We are moving forward with our current plans on the Ravena plant modernisation," said Lafarge US communications director Joelle Lipski-Rockwood. The rebuilding is part of a December 2010 settlement with state and federal officials to dramatically reduce emissions of NOx and SO2 at Lafarge's plants in the state of New York.
Two kilns that date from the 1950s will be replaced by a modern kiln with advanced pollution controls. Pollution at the Ravena plant, which sits across from the local high school, has concerned many local residents for many years. The new plant, which is expected to be running by mid-2017, will emit no more than 26.8kg/yr of mercury. In 2012 the plant emitted 63.5kg of mercury and in 2011 it emitted 64.9kg.
The project was initially due to be completed by the end of 2015, but in 2013 Lafarge received an extension from the state Department of Environmental Conservation in exchange for greater pollution cuts. As part of the emissions agreement, Lafarge also would have spent US$2m to retrain workers if plans to rebuild the plant were shelved and the plant was closed.
French Guiana: Colombia's Cementos Argos has signed an agreement with the French multinational cement giant Lafarge to acquire assets in French Guiana for Euro50m. The purchase is coherent with Cementos Argos' objective of consolidating its operational and logistical cement network and with its expansion strategy, which has recently incorporated assets in the United States and Honduras.
Subject to approvals, Cementos Argos has acquired 100% of the company Ciments Guyanais, which is owned equally by France's Lafarge and Switzerland's Holcim. As such the announced deal represents the first sale of Lafarge, Holcim or Lafarge-Holcim joint venture cement assets since the announcement of the intended mega-merger between Lafarge and Holcim to form LafargeHolcim. The assets included in the purchase are a 0.2Mt/yr clinker grinding station and a port, both located in Dégrad des Cannes, close to the capital, Cayenne. They generate earnings before interest, tax, depreciation and amortization (EBITDA) of approximately Euro8.1m/yr.
"This new acquisition in French Guiana nicely complements our current network of assets in the region, especially given its proximity to our grinding facilities in Suriname and our cement terminals in the Antilles," said Jorge Mario Velásquez, CEO of Cementos Argos. "This overseas department of France has cement consumption per capita of 433kg/capita/yr, which is almost twice as much as the average in Latin America. Also, the assets are well aligned with the operations that were recently acquired in the United States and our assets in the Caribbean and Colombia."
The transaction is subject to the usual regulatory procedures.
LafargeHolcim and the power of the mega-merger
09 April 2014The news that Holcim and Lafarge are planning a merger should come as no great surprise to long-term observers of the industry. Such mega-mergers have been periodically mooted over the decades and have already come to pass.
Lafarge took its present form through many acquisitions, but it was the mega-merger with Blue Circle Industries that brought it to pre-eminence. That deal was hard fought, rapidly becoming a hostile takeover after the then-CEO of Blue Circle, Richard Haythornthwaite, decided that the amount that the CEO of Lafarge, Bertrand Coulomb, was offering for his company was not high enough.
A year of claims, counter-claims, offers, rebuffs and haggling ensued, leading to a higher offer that was eventually accepted by the Blue Circle board. However, as Lafarge was a Euro-denominated company and Blue Circle was resolutely British (and was thinking in UK pounds sterling) after exchange rate variations had been taken into account, Lafarge paid less after a year than it had offered in he first place. The British CEO got a big pay-off and went on to greater glory, having appeared to extract a great deal more money (in GB pounds) for his shareholders. Apparently they teach this as a case study in business schools.
Mega-mergers have also shaped other giants in the industry. For example Chichibu-Onoda and Sumitomo-Osaka came together to make Taiheiyo Cement and Ciments Français was added to Italcimenti, although in this last case they still retain their separate identities. Often the deals amount to an accretive takeover by one larger company of a smaller one, but transformative deals consisting of a 'merger' of 'equals' also happen in the cement industry, and with good reason. The merging of research efforts; the optimisation of management; the rationalisation of procurement strategies: all of these will immediately save plenty of money.
However, it's on the financial side that these larger merged companies can sometimes see the most benefit. The cost of borrowing money is inversely proportional to the size of the company (and of the sums involved); the colossal sums demanded by overpaid and greedy bankers will diminish in proportion if the sums involved are larger. So, the cost of borrowing money to be able to invest in takeovers or for capital expenditure will reduce as a proportion of overall cost.
There are other significant potential savings as well, from operational synergies, although these can be harder to quantify and - critically - harder to retain once the competition technocrats have run their slide rules over the proposed deal. They generally do not like too much of the market ending in the hands of too few players.
A good case in point is the recent mega of Tarmac and Lafarge in the UK. To allow the deal to take place the merged company was obliged to sell off one of its key assets, the Hope cement plant, which is now owned and operated by newcomer Hope Construction Materials. Even after the deal has been completed, the market regulator is considering the possibility of making the merged company sell additional facilities, something that strikes Global Cement as 'just not on.'
However, with operations in 90 countries, Lafarge and Holcim can expect to face competition scrutiny in at least 15 countries including Brazil, Canada, Ecuador, France, the UK, the US, Morocco and the Philippines. Meanwhile, in Serbia it has been reported the two companies have a combined market share of 97% across all their business lines!
Lafarge and Holcim have overlapping facilities and distribution networks in a number of countries, and any merged company will probably be required to sell some of them to its competitors. Other companies might be licking their lips at the prospect, as usual CRH is already being lined up in the Irish press, but the units will be sold at a market rate - and not a penny less. It might be that the merged company cannot control which facilities are sold, meaning that they might end up with a less than optimised system. Not so good after all.
If the deal goes through, it will create a Europe-based behemoth with a production capacity of over 200Mt, enough to retain a place on the global top 10 companies with the ever-rationalising and concatenating Chinese companies. When the news first broke we asked what might the new company called? We liked a short mash-up of the two names, like Lolcim (a humorous nod to today's 'youth-speak' perhaps) or Hafarge. However, the level of preparation backing the merger plan soon became clear from financial due-diligence right down to a new name: LafargeHolcim.
Yet for all this co-ordinated work from companies that were meant to be competitors until as recently as March 2014, we should remember what happened to the proposed BHP Billiton-Rio Tinto takeover. Valued at a high of US$170bn it shrivelled up as the global economy collapsed in 2008 amidst concerns from regulators. The idea may be out there but LafargeHolcim has a long way to go before it actually exists.
New leadership proposed for LafargeHolcim
09 April 2014Worldwide: Lafarge and Holcim have released plans regarding who will lead their proposed merger, LafargeHolcim. The chairman of the new board will be Wolfgang Reitzle, the future chairman of Holcim. Bruno Lafont, chairman and CEO of Lafarge will become CEO of the new group and member of the board.
Thomas Aebischer, Holcim's CFO will become CFO of the new group. Jean-Jacques Gauthier, Lafarge's CFO will become chief integration officer of the new group. The Executive Committee will be formed from both Lafarge and Holcim management.
In order to ensure efficient execution of the merger, an integration committee will prepare the integration plan to be implemented straight after the closing of the transaction. Bernard Fontana, Holcim's existing CEO will remain in charge of Holcim until completion of the transaction. He will co-chair the integration committee.
The merger is expected to be completed in the first half of 2015 subject to shareholder approval and regulatory approval in the many countries that the two multinational building materials producers operate in.