Displaying items by tag: LafargeHolcim

Europe: Lafarge and Holcim have set up a Divestment Committee following the announcement of the planned merger on 7 April 2014, with the aim of taking forward the divestment process. The Committee has drawn up a list of proposed asset disposals to anticipate potential competition authorities' requirements. The announcement represents a major part of the total assets that the two companies aim to divest.

The two companies are proposing the following disposals:

• Austria: Lafarge's Mannersdorf cement plant;

• France: Holcim's assets in metropolitan France, except for its Altkirch cement plant and aggregates and ready-mix sites in the Haut-Rhin market; Lafarge's assets on Reunion island; except for its shareholding in Ciments de Bourbon;

• Germany: Lafarge's assets;

• Hungary: Holcim's assets;

• Romania: Lafarge's assets;

• Serbia: Holcim's assets;

• UK: Lafarge Tarmac assets with the possible exception of one cement plant.

• Canada: Holcim's assets;

• Mauritius: Holcim's assets;

• The Philippines: the associated companies of Lafarge and Holcim (Lafarge Republic Inc and Holcim Philippines Inc) are exploring the combination of their businesses other than LRI's Bulacan, Norzagaray and Iligan plants, which are considered to be divested as part of such combination;

• Brazil: Holcim and Lafarge will file soon with the Brazilian regulator (CADE) and propose a comprehensive and high quality package of divestments.

The future LafargeHolcim group will have a significant and balanced industrial base in Europe, enabling it to take advantage of the European economic recovery. Both companies will continue to consider whether divestments would be necessary where there might be overlaps or depending on regulatory requirements.

The proposed divestments are subject to review and further discussions with the regulatory authorities. The divestment process will be carried out in the framework of the relevant social processes and ongoing dialogue with the employee representatives' bodies and will be conducted in parallel to discussions with the competition authorities and potential buyers. The divestment process will be completed subject to the closing of the merger between Holcim and Lafarge.

Find out exactly which cement plants are affected by Holcim and Lafarge's proposed asset divestments in the Global Cement Directory 2014, available here.

The creation of Lafarge Africa, the clearance of the Cemex West acquisition by Holcim in Germany and the sale of Lafarge's assets in Ecuador all hint at the scale of business that LafargeHolcim will command when it comes into existence. Despite the media saturation of coverage on the merger the implications in developing markets are still worthwhile exploring, especially in Latin American and Africa.

In sub-Saharan Africa, Lafarge is merging its cement companies in Nigeria and South Africa to create Lafarge Africa. Analysts Exotix have described the move as, 'the birth of a leading player on a continental scale'. Indeed, if Lafarge wanted to grow Lafarge Africa to encompass its many other African cement producing subsidiaries it could hold at least 17 integrated cement plants (including plants in north Africa) with a cement production capacity of at least 40Mt/yr in 10 countries and infrastructure in others. That puts it head-to-head with Dangote's plans to meet 40Mt/yr by the end of 2014 through its many expansion projects. Following these two market leaders would come South African-based cement producer PPC with its expansion plans around the continent.

Meanwhile across the Atlantic in Latin America the Lafarge-Holcim merger threatens Cemex. Unlike in Africa where Lafarge has a ubiquitous but disparate presence, Lafarge and Holcim's cement assets are more evenly scattered around the Caribbean, Central and South America. In terms of cement production capacity Cemex and Lafarge-Holcim will both have around 30Mt/yr, with Cemex just in front. The next biggest cement producers in Latin America will be Votorantim (present mainly in Brazil) with just over 20Mt/yr and Cementos Argos (Columbia) with about the same. This includes some new acquisitions in the United States for the growing Columbian producer. In Ecuador Lafarge and Holcim held over 50% of the market share, hence the sale by Lafarge of its assets to Union Andina de Cementos for US$553m.

Depending on how well the merger integrates the two companies, corals the various subsidiaries and implements strategic thinking the merger could just create business as usual with little disruption to the existing order. Yet in both continents the merger has the opportunity to shake up and reinvigorate the cement markets as existing players suddenly discover serious new competition and react accordingly.

Africa has a population of 1.1bn and it had a Gross Domestic Product (GDP) of US$2320/capita in 2013. South America had a population of 359m in 2010 and a GDP of US$8929/capita. This compares to US$27,250/capita in Europe and US$54,152/capita in the US. The economic development potential for each continent is humongous. Post-merger, LafargeHolcim will be first or second in line for some of this potential in Latin America and Africa.

Holcim released its first quarter results for 2014 this week and benefits of a merger seemed clear: both sales and profit were down. Net sales fell by 5.4% to Euro3.35bn and net income fell by 57.5% to Euro65.6m. However, Chief Financial Officer Thomas Aebischer was upbeat on meeting the regulatory requirements of any merger and the prospect of divestment opportunities.

This week we have a guest contributor - Andy Gboka, an analyst at Exotix LLP, a London-based broker specialised in Frontier markets – writing about the impact in Africa from the Lafarge-Holcim merger:

No change in Sub-Saharan Africa cement markets

Looking at (1) the location and size of the assets that both groups operate across the region but also (2) the expansion projects recently announced, we do not anticipate any upheaval in the competitive landscape, at least in the medium term.

Potential reshuffle of African assets

We identify Nigeria and Morocco as the main countries where the two companies are likely to reorganise their operations post-deal.

After the market excitement Lafarge / Holcim's price gains have averaged 9% since the announcement versus +8% the same day (04/04/14). We think it timely to discuss, from a competition angle, the likely impact on sector dynamics in Africa.

Starting with Sub-Saharan Africa where Lafarge and Holcim have been present for decades, the two groups have grown their output capability over time to reach a combined ~20.7Mt/yr. Holcim is a much smaller cement producer through its ~2.6Mt/yr in Ivory Coast, Guinea and Nigeria, whereas the French manufacturer is a regional leader with ~18.1Mt/yr capacity across 10 different countries. North African exposure paints a similar picture, as the Swiss company's installed capacity is ~9.6Mt/yr versus ~21.6Mt/yr for Lafarge (including their respective shareholdings in Lafarge Cement Egypt).

Although we do not believe the proposed merger will significantly alter Africa's competitive environment, business reorganisation is likely in:

(1) Nigeria. LafargeHolcim would control more than ~70% of the United Cement Company of Nigeria Ltd (UNICEM, 2.5Mt/yr in Calabar) which, in our view, is a suitable context for minorities' buyout.

(2) Morocco. More than ~50% of the industry's production capacity is controlled by the two players, a situation that may lead to asset disposals after review by the local competition commission.

Beyond the corporate implications, this announcement also puts into perspective the multiples investors are willing to pay for companies operating in Africa. Indeed, for 2014/2015 financial year the enterprise multiple (enterprise value / earnings before depreciation and amortisation) and price-to-book ratio for the main stocks listed in Nigeria and Kenya average 10.3x and 2.9x respectively, vs. 8.4x and 1.3x for LafargeHolcim (Bloomberg). While demand growth prospects in the teen digits or margins above ~25% (especially in Nigeria) would support a premium for the former names, we think the extent of that premium is questionable.

The best illustration is Dangote Cement, whose market capitalisation stands at ~US$25bn for total capacity estimated at 50 – 55Mt/yr by the 2016 financial year, relatively high when compared to the expected ~US$55bn market capitalisation for LafargeHolcim with (1) 427Mt/yr cement capacity globally and (2) ~60% of its revenue from emerging markets. This underpins our cautious stance on the sector.

Source: Andy Gboka, analyst at Exotix LLP (London-Based broker specialised in Frontier markets).

Andy Gboka will be speaking at the forthcoming Global CemTrader Conference, taking place in London on 2 -3 June 2014.

US: 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 NO_x 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.

India: Switzerland-based Holcim, the parent company of ACC and Ambuja Cements, will continue to retain its separate brands in India after its merger with Lafarge.

The management of ACC announced that there would be no impact to the existing brands post-merger. "The merger will be beneficial for the Indian cement industry and is expected to bring positive changes for the company," said the chairman of ACC, N S Sekhsaria. "ACC brand will remain intact after the merger of Holcim and Lafarge."

The merger is expected to take up to 18 months and Holcim's future plans in India will be known only after the merger is completed. Sekhsaria added that while the brands will be retained, there may be some rationalisation of operations.

The 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.

Worldwide: 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.

Worldwide: Reuters has reported new details regarding the potential merger of Holcim and Lafarge. The merger would spark some Euro5bn of asset sales worldwide to steer it through antitrust rules.

With operations in 90 countries, Lafarge and Holcim expect to face antitrust scrutiny in 15 jurisdictions, including Brazil, Canada, Ecuador, France, the UK, the US, Morocco and the Philippines. LafargeHolcim could have a market share in excess of 50% in some areas. Even in countries such as the US where it would be smaller, monopoly authorities are likely to become involved.

The deal will help the companies slash costs, trim debt and better cope with 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. Emerging markets such as Latin America and Africa will account for 60% of the new group's sales, but no single country will represent more than 10%.

"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 Euro1.4bn after three years, thanks to economies of scale, better operational efficiency and lower financing costs.

Lafarge and Holcim confirmed that they would sell businesses worth 10 - 15% of the group's earnings before interest, tax, depreciation and amortisation (EBITDA) to satisfy antitrust concerns, worth about Euro5bn in total. Two-thirds of the asset sales would be in Europe, according to Lafont. The companies also have overlapping business operations in Canada, Brazil, India and China.

"We are immediately going to start discussions with the European Commission and other competition regulators in a constructive spirit," Lafont said, adding that the combined company would continue to improve operational performance and that there would be no plant closures associated with the deal.

The expected EBITDA synergies are made up of Euro200m at operational level, Euro340m in purchasing, Euro250m in sales and Euro200m in innovation. On top of this, the company sees Euro200m of savings on financial costs and Euro200m for investments.

Lafarge's largest shareholder, Belgian holding company Groupe Bruxelles Lambert, which has a 21% stake, said that it would support the deal and would hold about 10% stake in the combined group after the transaction was completed. The transaction has the support of core shareholders and is expected to close in the first half of 2015, the companies added.

European Commission spokesman for competition policy, Antoine Colombani, said that the companies had not yet formally notified the European Union about the deal.

Worldwide: More details have emerged over the weekend regarding the proposed merger of Lafarge and Holcim, with the name LafargeHolcim mentioned by key staff. The discussions look set to lead to a company with combined sales of around Euro32bn and earnings before interest, taxes, depreciation and amortisation (EBITDA) of Euro6.5bn.

"This proposed merger is a once in a lifetime opportunity to deliver substantially better value to customers with more innovation, a wider range of products and solutions and more sustainability and enhanced returns to shareholders," said Rolf Soiron, chairman of Holcim. "LafargeHolcim will be uniquely positioned to take advantage of growth in developed markets and the world's fastest growing economies by supplying the materials that will enable the construction industry to meet the challenges of the future."

"By combining Holcim's experienced teams, complementary geographies and innovative expertise with ours, we propose to set up the most advanced group in the construction industry, for the benefit of our clients, our employees and our shareholders," said Bruno Lafont, chairman and CEO of Lafarge. "I am confident that this merger of equals provides a unique opportunity to rapidly create the most advanced platform in our industry with outstanding synergies. With a best-in-class international portfolio, robust balance sheet and strong governance, the new group will offer higher growth and low risk, thus creating more value.'

Unofficial sources have suggested that the weekend's meetings involved detailed discussions regarding the sale of some parts of the companies' assets to conform to national and regional anti-monopoly regulations.

Subject to shareholder and regulatory approvals and other customary authorisations completion is to take place by the end of the first half of 2015.