Global Cement News
Search Cement News
Update on HeidelbergCement takeover of Italcementi
Written by David Perilli, Global Cement
17 February 2016
HeidelbergCement has finally provided a little more detail about its acquisition of Italcementi with the releases of its preliminary results for 2015. The key message is that all is well. Expected savings from the takeover are growing, less borrowing is required to make the purchase and the approvals from competition commissions around the world are rolling in.
Looking at the cost savings first, the potential for synergies or operational savings was first estimated at Euro175m at the time of the takeover announcement in late July 2015. At that time HeidelbergCement hoped to be able to deliver almost 30% of this figure in 2016. If it goes ahead this will sweeten the honeymoon period considerably following the completion of the deal. The largest savings were expected to come from the commercial area and in purchasing.
This figure then grew to Euro300m at the time of HeidelbergCement’s third quarter results in November 2015. Now, the effects of financing costs and taxes were included. At this point some more strategy about how HeidelbergCement was planning to use Italcementi’s resources started to emerge in the synergy calculations. HeidelbergCement intends to use its global trading business with Italcementi’s ‘export orientated’ cement plants. Import demand, for example in North America or Africa, that used to be bought from third party sources previously, can now be supplied by Italcementi’s plants after the merger, meeting demand and holding capacity utilisation rates up. With the publication of the preliminary results for 2015 the savings figure has grown to Euro400m with little explanation. If only it were that easy to find Euro100m down the back of my sofa.
The financing has also been proceeding smoothly. The loan value required for the takeover has fallen from Euro4.4bn to Euro2bn. Reasons for this include the exclusion of the risk of a mandatory takeover offer to minority shareholders in Morocco, some of Italcementi’s creditor banks agreeing to waive their change of control clauses and the issuance of a Euro625m bond in January 2016. The bridge financing, available initially from Deutsche Bank and Morgan Stanley, remains at Euro2.7bn.
Finally, competition commission approval has been granted in India, Canada, Morocco and Kazakhstan. Despite holding a cement product capacity of 10.5Mt/yr in India with 4.1Mt/yr additional capacity in development, this was unlikely to be a problem in India, with its total national capacity of 280Mt/yr. The commission implemented the Elzinga Hogarty Test and concluded that there is sufficient competition.
This leaves the possibly trickier approvals outstanding in Europe and the US. Belgium is likely to be the main issue in Europe given that the two companies run 73% or 4.5Mt/yr of the market in production capacity. Divestments are expected here.
In the US, precedent should save HeidelbergCement from interference. HeidelbergCement’s and Italcementi’s combined cement production assets will give it a production capacity of 16.4Mt/yr or around 14% or market share. This will make it the second biggest producer in the country after LafargeHolcim which had its merger approved in 2015. There are no obvious overlaps in their clinker production assets except for a minor one in Pennsylvania which holds both the 2Mt/yr Ordinary Portland Cement Essroc (Italcementi) Nazareth Plant and the 0.13Mt/yr Lehigh White Cement (HeidelbergCement). These two plants are unlikely to be considered in competition with each other.
So, continued smooth sailing is expected for the takeover. Since most of the information regarding the acquisition has come directly from HeidelbergCement it was unlikely to appear otherwise. Let’s see whether this remains the case when Italcementi releases its financial results for 2015 later in the week on 19 February 2016.
Hetauda Cement plant reopens after fuel blockade lifts 17 February 2016
Nepal: The Hetauda Cement plant has started producing cement again following the lifting of an unofficial fuel blockade by India. The plant was shut after it could not import coal from India in the autumn of 2016. Hetauda resumed production on 11 February 2016, according to the Katmandu Post. Factory officials say the plant lost US$0.9m during the enforced closure.
Cementos Pacasmayo’s profit rises by 12.1% to US$60.4m in 2015 17 February 2016
Peru: Cementos Pacasmayo’s net income rose by 12.1% year-on-year to US$60.4m in 2015 from US$53.8m in 2014. Its revenue fell slightly to US$351m from US$354m. Its cement production volumes fell slightly by 0.7% to 2.3Mt from 2.35Mt.
The cement producer attributed its profit growth to cost savings despite a ‘challenging’ operating environment. It managed to hold its cement production volumes at a stable level due to the ramping up of its Piura cement plant in the fourth quarter of 2015 despite falling volumes at its Pacasmayo and Rioja cement plants.
Paraguay: Industria Nacional del Cemento (INC) has shut down its clinker kiln for 30 days to start work on a fuel upgrade project. The US$45m project is intended to allow the kiln to use other fuels as well as the fuel oil it currently uses. A further 90-day stoppage period has been scheduled for mid-2016. The project is expected to be complete by the end of the year.
INC’s president Jorge Mendez has reassured the public that the cement supply from his plant will not drop during the maintenance period. INC will continue delivering between 50,000 - 55,000 bags/day. The firm has 86,500t of clinker in stock. In addition the government will also import 200,000t of cement to maintain levels. INC is the country’s sole integrated cement plant.
Financial irregularities raised at Calcom Cement 17 February 2016
India: The Oriental Bank of Commerce has raised allegations of ‘mismanagement and siphoning of public money’ at Calcom Cement in a letter sent to its lenders, according to Business Line. The bank was quoting allegations made by Bawri Group.
Together Bawri Group and Dalmia Bharat Group run Calcom Cement, a 2.1Mt/yr cement plant in Assam, as a joint venture. Dalmia Bharat owns a 76% stake in Calcom through its subsidiary Dalmia Cement Bharat.
The letter, dated 14 January 2016, was addressed to Axis Bank, lead lender in a consortium of lenders to Calcom. It stated that, “affairs at CCIL (Calcom) are not being managed in a prudent manner and (there have been) several financial irregularities including fund diversion through circular transactions.” Axis Bank declined to comment on an individual account. Dalmia Bharat said it would not speak to the media, pending arbitration proceedings with the Bawri group.