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London and Paris - Holcim and Lafarge plan to retain dual Swiss and French listings and headquarters, according to people familiar with the matter.
The two are in talks to create the biggest cement maker to cut production overcapacity and energy costs.
An all-share merger, creating a company with $40 billion (R422bn) in annual sales, was likely to be announced as early as today, the people said, asking not to be identified as discussions were private.
The two were exploring a merger of equals that would build on their “strengths and identities”, they said on Friday. Holcim is based in Jona, Switzerland and Lafarge is based in Paris.
A deal would let the two producers cut costs by combining operations as some of the industry’s kilns run at a loss after the recent global recession eroded demand.
To improve returns from plants with high energy consumption, in August Holcim agreed to swap assets in Germany and the Czech Republic with Mexico’s Cemex, the biggest cement maker in the Americas.
Lafarge rose 8.9 percent in Paris on Friday, giving it a market value of e18.4bn (R266bn), while Holcim gained 6.9 percent in Zurich, valuing the firm at Sf26.2bn (R310bn) after the companies confirmed talks.
Representatives for Lafarge and Holcim declined to comment beyond the company statements.
“There is still massive oversupply in the industry,” said Ian Osburn, an analyst at Cantor Fitzgerald. A deal would help them to “cut a lot of costs and dominate a few more markets”.
A transaction may face scrutiny from regulators around the world, and Osburn said the companies would need to sell assets in Europe and the US. The deal would face reviews in Europe, especially in France, as well as in Spain and Germany, he said, while regulators in Russia, Hungary and the Czech Republic might examine it too.
Lafarge estimated in its annual report last year that it had a cement market share of 34 percent in France, 40 percent in the UK and 10 percent in Germany and Spain. It had a market share of 12 percent in the US and 7 percent in Russia. Holcim did not provide market shares for individual markets.
Holcim employs 71 000 people in about 70 countries while Lafarge has about 65 000 workers in 64 markets.
News of the talks on Friday lifted construction and materials shares in Europe, helping the Stoxx Europe 600 index rise to a six-year high. Germany’s HeidelbergCement, the third-largest maker of cement, rose 4.3 percent in Frankfurt.
The chief executive of the 102-year-old Swiss company, Bernard Fontana, a French national, has started a cost-cutting programme, using the same “Leadership Journey” label he used in overhauling steel maker Aperam.
At 181-year-old Lafarge, chief executive Bruno Lafont has been slashing spending, pushing sales of higher-margin services and selling assets to repair a credit rating that has fallen one level below investment grade amid a slump in European construction and rising energy prices.
Moody’s Investors Service rates Lafarge Ba1 and Holcim two levels higher at Baa2.
At least four billionaires own shares in Holcim or Lafarge, including Egypt’s richest person, Nassef Sawiris, Belgium’s Albert Frere, Switzerland’s fourth-richest individual, Thomas Schmidheiny, and Georgia-born Filaret Galchev, according to data compiled by Bloomberg.
Both companies said earlier this year that demand for their offerings was improving amid a global economic recovery. In February Holcim forecast improved cement shipments this year.
The same month, Lafarge reported earnings that beat analyst estimates.
“This is traditionally the time when you’d see mergers and acquisitions in sectors in upswings, when profits and margins are improving,” Osburn said. – Bloomberg