Lafarge would combine its Nigerian and South African assets to form a new company to compete with African market leader Dangote Cement, the company said yesterday.
The French cement maker, which plans to merge with Holcim of Switzerland to create the biggest cement producer, said the new entity, Lafarge Africa, would be listed on the Nigerian Stock Exchange.
The business would have cement production capacity of 12 million tons a year and had combined revenue of $1.25 billion (R13.5bn) last year.
Tunde Abidoye, an analyst at FBN Capital, said the deal “is aimed at responding to its more aggressive rival, Dangote, and to consolidate its positioning as a leading cement firm”.
While synergies might be modest, the company would gain production capacity and market share in the continent’s two biggest economies, he said.
Lafarge, which operates in 64 countries, is competing against Lagos-based Dangote, which is expanding across the continent, as well as JSE-listed PPC, which is also trying to boost revenue outside its domestic market.
Dangote plans to have capacity of more than 60 million tons in 2016. PPC plans to boost production to 14 million tons by the end of 2017.
Lafarge is at loggerheads with Nigerian regulators after its preferred 32.5 grade cement was deemed unsafe for anything other than plastering.
Only 42.5 grade cement, a market controlled by Dangote, could be used for columns and slabs, the Standards Organisation of Nigeria said last month.
Lafarge said there were several impending court actions challenging the ruling.
The transaction to create Lafarge Africa will include a cash payment of $200 million and the issue of 1.4 million shares to the parent company.
Lafarge has been selling assets to repair a credit rating that has fallen one level below investment grade and to reduce borrowings.
“The transaction is positive and consistent with the group’s attempt to reduce debt,” Sven Edelfelt, an analyst at Bryan Garnier, said yesterday.
Lafarge Cement Wapco Nigeria leapt 10.24 percent in Lagos yesterday, valuing it at 338 billion naira (R22bn).