Merger of equals for Holcim, Lafarge

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br _LAFARGE-HOLCIM Reuters Holcim chairman Rolf Soiron, left, and Lafarge chief executive Bruno Lafont, who will become chief executive of Lafarge-Holcim, attend a news conference in Paris yesterday. Switzerland's Holcim unveiled an all-share deal to buy the French company and create the worlds biggest cement maker. Photo: Reuters

Paris - Switzerland’S Holcim unveiled an all-share deal to buy France’s Lafarge yesterday to create the world’s biggest cement maker with combined sales of e32 billion (R461bn).

The partners billed the deal as a merger of equals under which Lafarge shareholders will receive one Holcim share for every Lafarge share held, with the combined group to be based in Switzerland and listed in Zurich and Paris.

Shares in Lafarge rose 4 percent at the open, the top gainer on France’s blue chip CAC 40 index, while shares in Holcim were up 5.4 percent.

In the new entity, worth just under $60bn (R633bn), Holcim would have 53 percent shareholder control and Lafarge the rest, they said in a website presentation. It followed news they were in talks on Friday and agreement at the weekend.

The deal will be the industry’s biggest tie-up, and would help the companies slash costs, trim debt and better cope with soaring energy prices, tough competition and weaker demand that have hurt the sector since the 2008 economic crisis.

The merged group will be present in 90 countries, with emerging markets such as Latin America and Africa accounting for 60 percent of sales, but no single country representing more than 10 percent.

The companies added that they expected total annual savings from joining forces of e1.4bn after three years, thanks to economies of scale, better operational efficiency and lower financing costs.

The deal is expected to draw scrutiny from competition watchdogs, however, with UBS analysts pointing to antitrust issues in key markets including Brazil, Canada, Ecuador, France, the UK, the US, Morocco and the Philippines.

“Given the number of potential issues and required remedies, we expect a lengthy approval process, taking up to two years,” UBS analysts wrote.

Lafarge and Holcim confirmed that they would sell businesses worth 10 percent to 15 percent of the group’s earnings before interest, tax, depreciation and amortisation (Ebitda) to satisfy antitrust concerns.

They have combined Ebitda of e6.5bn. Based on a multiple of eight times Ebitda, they could dispose of e5bn to e8bn worth of business, Natixis analysts wrote.

Two-thirds of the asset sales would be in Europe, said Lafarge chief Bruno Lafont, who will become chief executive of Lafarge-Holcim, on a conference call. The companies also had overlapping business operations in Canada, Brazil, India and China, he said, declining to give more details on which countries might be most affected by asset sales.

“We are going to start discussions with the European Commission and other competition regulators in a constructive spirit,” said Lafont, stressing that the assets for sale were of “very high quality”.

“This guarantees their attractiveness to potential buyers, and it also gives us confidence in our ability to make these divestments.”

He said the combined company would continue to improve operational performance but “there are no plant closures associated with this deal”.

Synergies at Ebitda level are made up of e200 million at operational level, e340m in purchasing, e250m in sales and e200m in innovation. On top of this, the company sees e200m of savings on financial costs and e200m for investments.

The transaction had the support of core shareholders and was expected to close in the first half of next year, the companies added. – Reuters



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