Displaying items by tag: spinoff

Switzerland/US: Holcim may list its upcoming market-separated North American business both in the US and Switzerland, Bloomberg has reported. The possibility arose due to Swiss and European restrictions on foreign shareholdings for locally-based funds, which may result in sales of Holcim stocks, with negative price impacts. On the other hand, a dual listing could potentially reduce the liquidity of any future US-listed shares.

SeeNews has reported that Holcim North America will be headquartered in Zug, Switzerland, for tax ‘advantages,’ while operating out of Chicago, US.

Spain: The Mexico-based owner of the Spain-based cement producer FCC, Carlos Slim, is reportedly planning to spin-off its cement and real estate assets into a separate business. The new entity, to be known as Inmocemento, would then be listed on the Madrid stock market, according to Reuters. Slim directly owns around 12% of FCC and controls a further 76% of the company through investment vehicles Inversora Carso and Operadora Inbursa.

Inmocemento would take FCC's cement plants, the majority stake it owns in the real estate developer Realia and a minority stake in Metrovacesa. Current FCC shareholders would receive Inmocemento stakes equivalent to their holdings in FCC.

FCC currently owns assets in different industries such as construction, water and sewage, waste management, cement and real estate. FCC's cement units reported revenues of €614m in 2023, while income from real estate was €254m. Together, these sectors represented 9% of FCC's revenue. It operates its cement business via the Cementos Portland Valderrivas subsidiary.

FCC said in a financial disclosure that its board believes that the move would boost shareholder value as the new and existing companies are likely to be worth more apart than together.

We return this week to look at Holcim’s decision to separate and list its business in North America. This is big news because the region delivered nearly a third of the group's earnings in 2022 and a quarter of its net sales. The building materials market in North America has shown considerable potential for Holcim and other companies in recent years. The question then is why would Holcim want to divest this wealth generating potential from the rest of the business? The answer lies in how much Holcim US could be worth in the future.

The group announced at the end of January 2024 that it is working towards a full capital market separation and US listing of its North American business. The transaction will be run as a spin-off with the intention of benefiting all of the company’s present shareholders. The intention is to create the “leading pure-play North American building solutions company,” with the US listing expected to complete in the first half of 2025. The new company will be run separately and independently to the rump of ‘non-US Holcim’ with its own management structure and directors. Crucially, non-US Holcim itself does not intend to have any cross-shareholding in the new company. Holcim’s current chief executive officer Jan Jenisch will focus on his role as chair from May 2024 with the appointment of Miljan Gutovic. Jenisch will then lead the work on spinning-off the US business before later, possibly, taking a senior position at one of the resulting companies, according to his comments at an investors and analysts’ conference.

Holcim says it is doing this to maximise the return to its shareholders. This dodges the question, given that public companies partly exist to do this anyway, so the decision may be more about generating value for shareholders in the short term rather than, say, increasing value for both shareholders and stakeholders by building a bigger business empire. Jenisch explained the decision as a natural evolution of the company’s strategy and he repeatedly described himself as “the first servant of the shareholders.” The divestment should make both companies more valuable through corporate reorganisation rather than buying new companies or making new products. The other thing to consider is that Holcim's shareholders have not been shy in making their requirements known going back to the arguments over the share split when Lafarge and Holcim merged in 2015 and the subsequent battle for the direction of the group.

A spin-off is a form of corporate divestment where a parent company creates a subsidiary as a separate entity with its own management structure and it distributes the shares in the new company between its existing shareholders. Typically it is seen as a good option for the shareholders of the original company compared to other types of divestment such as a split-off, an equity carve out or a straight sale. The benefits include generating proceeds from the divestment, simplifying the corporate structure, increasing the value of both companies and there are tax advantages too. The risk of going for a spin-off though is that the new company may start with operational or financial issues as it starts going solo. It may also have difficulty dealing with market preconceptions about what the new organisation is like based on the parent.

Jenisch said that the group had considered going for an initial public offering for the North American business but had decided that this was riskier. Holcim expects and hopes that the value of the two companies will be higher separately than as they are at present as part of one company. Hence, its investor presentation describing the spin-off was full of plenty of arguments positioning how strong the US business is and could be. Chief financial officer Steffen Kindler also pointed out during the investor conference that one of the reasons the company opted for a full separation was to better secure Standard and Poor's (S&P) listing criteria, another sign that the plan is targeted towards securing as much value as possible. The company is targeting net sales of over US$20bn/yr by 2030 for its North American business.

The strength of the US market in recent years has been evident from the actions of other companies in the building materials sector. Ireland-based CRH moved its primary listing to the US in 2023 due to its high proportion of earnings from the country and the potential in the future from “continued economic expansion, a growing population and significant construction needs.” Another big recent transaction in the sector was the merger of the US operations of Summit Materials and Cementos Argos that completed in early 2024. The diverging prospects of the US economy versus Europe have been driving this trend. Listing on a US exchange can also give companies potentially higher valuations along with access to a larger market and easier connections to private equity to help fund expansion.

With this in mind Holcim’s decision to do something with its North America operations makes sense as it helps the company to increase the return to its shareholders, grow the business and remain competitive. The dominance of the US market on Holcim’s balance sheet is increasingly making the company a US one but without the advantages of being locally based. A spin-off suits the Milton Freedman dictum that companies only exist to maximise shareholder return but there is always a debate to be had about how to actually do this. Splitting Holcim’s growth-based US business from the more sustainability-minded European one ties into this for example, as differences in corporate social responsibilities grow between the regions.

Finally, on an emotional level giving up a key business area feels like a wrench to the status quo. Holcim will no longer be the largest cement producer outside of China once the separation completes. We await further details on how the two companies will be connected following the split… but change is coming.

North America: Holcim has announced plans for a full capital market separation of its North American business. Subject to shareholder approval, it will subsequently list the business in the US in the first half of 2025. The group will communicate the final structure of the separation, which it expects to execute as a spin-off, later in 2024. Reuters has reported that Holcim chair and chief executive officer Jan Jenisch said that the North American business may attract a valuation of US$30bn upon listing, with Holcim retaining no stake. The business recorded an estimated earnings before interest, taxation, depreciation and amortisation (EBITDA) margin of over 27% in 2023. Following the US listing of the business, Holcim itself expects to continue its inclusion in the Swiss Market Index in Switzerland.

Jenisch said “Holcim has reached a new level of financial performance and a superior earnings profile with industry-leading margins and a strong balance sheet. The success of our North American business makes it the leading pure-play building solutions company in the region. With a US listing, we will unleash its full potential to be the partner of choice for our customers in one of the world’s most attractive construction markets. As we fully capitalise on the region’s infrastructure and construction boom, we will accelerate growth and unlock value for our stakeholders.”

US: Eagle Materials has appointed Mike Nicolais as the chairman and Michael Haack as the president and chief executive officer (CEO) of its Heavy Materials spin-off business. The building materials company intends to split into separate Heavy Materials and Light Materials businesses in the summer of 2020. The Heavy Materials company will focus on cement production with complementary concrete, aggregates and sand operations. It will also continue to evaluate strategic alternatives with respect to its frac sand business.