 "Holcim, Lafarge unveil merger plan to create cement giant")
Holcim of Switzerland unveiled a deal to buy France's Lafarge on Monday to create the world's biggest cement maker, with $44 billion of annual sales, and launch asset sales worldwide to steer it over antitrust hurdles.
The partners billed the industry's biggest ever tie-up as a merger of equals, under which Lafarge shareholders receive one Holcim share for every Lafarge held and Holcim investors end up with 53 per cent of the new group. The merged business will be based in Switzerland and listed in Zurich and Paris.
As the two biggest listed companies in the sector already, with operations in 90 countries, the pair expect to face antitrust scrutiny in 15 jurisdictions and to sell some Euro 5 billion ($6.85 billion) of assets to persuade competition regulators to allow the creation of LafargeHolcim.
Analysts said it would bring together Holcim's strength in marketing with Lafarge's innovative edge and could generate substantial savings — provided necessary asset sales, which may take several years, do not deplete that potential too much.
"The road to merger clearance will be a long, complex and uncertain one," said David Anderson at Brussels-based law firm Berwin Leighton Paisner, noting that the cement industry had a long cartel history worldwide and was already under scrutiny.
Some analysts believe regulators could block the merger, though most expect the deal to go through in the end.
Two thirds of divestments are expected to affect western Europe but there are also overlapping operations in India, China, Canada and Brazil, Lafarge CEO Bruno Lafont told reporters. He is set to run the combined group.
In afternoon trade, both firms' shares were up around 0.5 per cent, trimming earlier gains. At Thursday's close, before news broke on Friday that the two were in merger talks, one share in Holcim was worth 4.4 per cent more than one in Lafarge.
Sources close to the talks, which began in earnest in January, said the process had been complex because both companies have shareholders with very large individual stakes, with whom a parallel set of negotiations had to be conducted.
Core investors had backed the deal, the companies said.
The negotiations, code-named "Cities" to reflect the theme of construction, was helped by conducive market conditions and the fact that the companies were similar in size.
Lafarge and Holcim said they expected total annual savings from joining forces of Euro 1.4 billion over three years, thanks to economies of scale, better operational efficiency and lower financing costs.
Emerging market push
The deal comes after both companies took on big debts in the past decade to expand in emerging markets, where rapid urbanisation has fed demand for building materials. The bursting of the US housing bubble and the Euro zone debt crisis caused markets to slump, however, and they both embarked on cost-cutting drives and started shedding assets to trim debt.
A combined LafargeHolcim will be better able to fend off growing competition from rivals in emerging markets, such as Mexico's Cemex and China's Anhui Conch, which last year overtook Lafarge as the world's top cement maker by volume, though not in revenue nor market value.
"It's really an offensive deal, a reconfiguration to have a group with a stronger presence in faster growing markets," said one source close the merger talks.
According to Aurel BGC analysts, Lafarge and Holcim together sold around 275 million tonnes of cement last year - nearly three times more than their closest listed rival, Germany's HeidelbergCement.
The groups complement each other geographically, company executives said, with Lafarge stronger in Africa and Holcim stronger in Latin America. Emerging markets will account for 60 percent of sales; no country will represent over 10 percent.
"LafargeHolcim will be present worldwide in a balanced way," said Lafont. He stressed that while its headquarters would be in Switzerland, it would have roots across Europe.
"If we can't create global champions in Europe, then we're defeated. And we can only create European champions if we manage to go beyond traditional frontiers," Holcim Chairman Rolf Soiron added at a joint news conference in Paris.
Divestments
Lafarge and Holcim confirmed that they would sell businesses worth 10-15 percent of the group's earnings before interest, tax, depreciation and amortisation (EBITDA) to satisfy antitrust concerns - or about 5 billion euros in total.
"We are immediately going to start discussions with the European Commission and other competition regulators in a constructive spirit," Lafont said, adding the group would set up a committee specifically devoted to divestments.
The merger has been discussed with France's Socialist government and there will be no plant closures tied to the deal, Lafont said. The group's research centre will be in France, Lafarge's home country, and there would be only a very limited impact on jobs there, he stressed.
Analysts cite France, Germany, the Czech Republic, Romania, Serbia, Canada, Morocco and the Philippines as areas where antitrust authorities would press for the biggest disposals.
Managers said synergies at EBITDA level are made up of 200 million euros at operational level, 340 million in purchasing, 250 million in sales and 200 million in innovation. On top of this, the companies see 200 million euros of savings on financial costs and 200 million for investments.
Both companies said the transaction had won the support of core shareholders and was expected to close in the first half of 2015. They both have high-profile billionaire shareholders -Belgium's Albert Frere, Egypt's Nassef Sawiris, Switzerland's Thomas Schmidheiny and Georgian-born Filaret Galchev.
Frere's holding company Groupe Bruxelles Lambert, which has a 21 percent stake, said it would support the deal and would hold about 10 percent in the combined group after the transaction was completed.
The partners billed the industry's biggest ever tie-up as a merger of equals, under which Lafarge shareholders receive one Holcim share for every Lafarge held and Holcim investors end up with 53 per cent of the new group. The merged business will be based in Switzerland and listed in Zurich and Paris.
As the two biggest listed companies in the sector already, with operations in 90 countries, the pair expect to face antitrust scrutiny in 15 jurisdictions and to sell some Euro 5 billion ($6.85 billion) of assets to persuade competition regulators to allow the creation of LafargeHolcim.
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The deal will give the group a market value of close to $60 billion. It will help it slash costs, trim debt and better cope with the soaring energy prices, tougher competition and weaker demand that have hurt the sector since the 2008 economic crisis.
Analysts said it would bring together Holcim's strength in marketing with Lafarge's innovative edge and could generate substantial savings — provided necessary asset sales, which may take several years, do not deplete that potential too much.
"The road to merger clearance will be a long, complex and uncertain one," said David Anderson at Brussels-based law firm Berwin Leighton Paisner, noting that the cement industry had a long cartel history worldwide and was already under scrutiny.
Some analysts believe regulators could block the merger, though most expect the deal to go through in the end.
Two thirds of divestments are expected to affect western Europe but there are also overlapping operations in India, China, Canada and Brazil, Lafarge CEO Bruno Lafont told reporters. He is set to run the combined group.
In afternoon trade, both firms' shares were up around 0.5 per cent, trimming earlier gains. At Thursday's close, before news broke on Friday that the two were in merger talks, one share in Holcim was worth 4.4 per cent more than one in Lafarge.
Sources close to the talks, which began in earnest in January, said the process had been complex because both companies have shareholders with very large individual stakes, with whom a parallel set of negotiations had to be conducted.
Core investors had backed the deal, the companies said.
The negotiations, code-named "Cities" to reflect the theme of construction, was helped by conducive market conditions and the fact that the companies were similar in size.
Lafarge and Holcim said they expected total annual savings from joining forces of Euro 1.4 billion over three years, thanks to economies of scale, better operational efficiency and lower financing costs.
Emerging market push
The deal comes after both companies took on big debts in the past decade to expand in emerging markets, where rapid urbanisation has fed demand for building materials. The bursting of the US housing bubble and the Euro zone debt crisis caused markets to slump, however, and they both embarked on cost-cutting drives and started shedding assets to trim debt.
A combined LafargeHolcim will be better able to fend off growing competition from rivals in emerging markets, such as Mexico's Cemex and China's Anhui Conch, which last year overtook Lafarge as the world's top cement maker by volume, though not in revenue nor market value.
"It's really an offensive deal, a reconfiguration to have a group with a stronger presence in faster growing markets," said one source close the merger talks.
According to Aurel BGC analysts, Lafarge and Holcim together sold around 275 million tonnes of cement last year - nearly three times more than their closest listed rival, Germany's HeidelbergCement.
The groups complement each other geographically, company executives said, with Lafarge stronger in Africa and Holcim stronger in Latin America. Emerging markets will account for 60 percent of sales; no country will represent over 10 percent.
"LafargeHolcim will be present worldwide in a balanced way," said Lafont. He stressed that while its headquarters would be in Switzerland, it would have roots across Europe.
"If we can't create global champions in Europe, then we're defeated. And we can only create European champions if we manage to go beyond traditional frontiers," Holcim Chairman Rolf Soiron added at a joint news conference in Paris.
Divestments
Lafarge and Holcim confirmed that they would sell businesses worth 10-15 percent of the group's earnings before interest, tax, depreciation and amortisation (EBITDA) to satisfy antitrust concerns - or about 5 billion euros in total.
"We are immediately going to start discussions with the European Commission and other competition regulators in a constructive spirit," Lafont said, adding the group would set up a committee specifically devoted to divestments.
The merger has been discussed with France's Socialist government and there will be no plant closures tied to the deal, Lafont said. The group's research centre will be in France, Lafarge's home country, and there would be only a very limited impact on jobs there, he stressed.
Analysts cite France, Germany, the Czech Republic, Romania, Serbia, Canada, Morocco and the Philippines as areas where antitrust authorities would press for the biggest disposals.
Managers said synergies at EBITDA level are made up of 200 million euros at operational level, 340 million in purchasing, 250 million in sales and 200 million in innovation. On top of this, the companies see 200 million euros of savings on financial costs and 200 million for investments.
Both companies said the transaction had won the support of core shareholders and was expected to close in the first half of 2015. They both have high-profile billionaire shareholders -Belgium's Albert Frere, Egypt's Nassef Sawiris, Switzerland's Thomas Schmidheiny and Georgian-born Filaret Galchev.
Frere's holding company Groupe Bruxelles Lambert, which has a 21 percent stake, said it would support the deal and would hold about 10 percent in the combined group after the transaction was completed.