Holcim and Lafarge should get selling. The Swiss and French cement groups need to make a host of disposals to win regulatory clearance for their proposed $50 billion merger. They can afford not to be too precious about holding out for the best prices.
Holcim stock, at 81.40 Swiss francs on April 10, and shares in Lafarge, at euro 66.10, price in a roughly 50 per cent chance of the transaction completing, a Breakingviews calculator suggests. Management needs to convince shareholders that the deal really will get past antitrust watchdogs.
Central to success will be a disposal programme involving assets with some euro 800 million of Ebitda. There are few details, but these are unlikely to be the best parts of the duo's combined portfolio. Most will be in mature territories, Europe in particular, where the groups have overlapping operations. Recent cement deals have fetched eight to 10 times historic Ebitda, bankers and analysts say. That implies a fair value of at least euro 6.4 billion for the business being sold.
Lafarge and Holcim have set themselves a tight timetable, targeting deal completion in the first half of 2015. The hope is that the assets attract competing buyers. These could include big rivals like HeidelbergCement, emerging market groups keen to expand into developed markets, and private equity.
The benefits of getting on with the merger almost certainly outweigh the likely value destruction from a rapid disposal programme, lining up a string of sales that can go through as soon as the deal closes. Lafarge and Holcim expect euro 1.2 billion of cost and finance synergies and euro 200 million from harder-to-achieve revenue gains in the third year after completion. If management has been cautious, the cost savings will probably be higher. Assume euro 1.4 billion of benefits are achieved somehow in 2017, and that is worth euro 7.5 billion today to the combined groups. If a fire sale of assets was done at a 30 per cent discount to fair value, that would destroy only euro 1.7 billion of value in present-day terms.
Taking a greedier approach to asset sales would be financially disciplined. But that risks derailing the combination or delaying integration. Holcim and Lafarge just need to get on with it.
