Global Cement News

India: Switzerland-based Holcim, the parent company of ACC and Ambuja Cements, will continue to retain its separate brands in India after its merger with Lafarge.

The management of ACC announced that there would be no impact to the existing brands post-merger. "The merger will be beneficial for the Indian cement industry and is expected to bring positive changes for the company," said the chairman of ACC, N S Sekhsaria. "ACC brand will remain intact after the merger of Holcim and Lafarge."

The merger is expected to take up to 18 months and Holcim's future plans in India will be known only after the merger is completed. Sekhsaria added that while the brands will be retained, there may be some rationalisation of operations.

UK: UK-based Anglo American plc said that it has completed the sale of its building products unit, Tarmac Building Products Ltd (TBP), to Lafarge Tarmac, without providing financial details.

Lafarge Tarmac is a 50/50 joint venture between Lafarge and Anglo American, formed through the merger of Lafarge's business in the UK and the local construction materials and services businesses of Anglo American.

French Guiana: Colombia's Cementos Argos has signed an agreement with the French multinational cement giant Lafarge to acquire assets in French Guiana for Euro50m. The purchase is coherent with Cementos Argos' objective of consolidating its operational and logistical cement network and with its expansion strategy, which has recently incorporated assets in the United States and Honduras.

Subject to approvals, Cementos Argos has acquired 100% of the company Ciments Guyanais, which is owned equally by France's Lafarge and Switzerland's Holcim. As such the announced deal represents the first sale of Lafarge, Holcim or Lafarge-Holcim joint venture cement assets since the announcement of the intended mega-merger between Lafarge and Holcim to form LafargeHolcim. The assets included in the purchase are a 0.2Mt/yr clinker grinding station and a port, both located in Dégrad des Cannes, close to the capital, Cayenne. They generate earnings before interest, tax, depreciation and amortization (EBITDA) of approximately Euro8.1m/yr.

"This new acquisition in French Guiana nicely complements our current network of assets in the region, especially given its proximity to our grinding facilities in Suriname and our cement terminals in the Antilles," said Jorge Mario Velásquez, CEO of Cementos Argos. "This overseas department of France has cement consumption per capita of 433kg/capita/yr, which is almost twice as much as the average in Latin America. Also, the assets are well aligned with the operations that were recently acquired in the United States and our assets in the Caribbean and Colombia."

The transaction is subject to the usual regulatory procedures.

The news that Holcim and Lafarge are planning a merger should come as no great surprise to long-term observers of the industry. Such mega-mergers have been periodically mooted over the decades and have already come to pass.

Lafarge took its present form through many acquisitions, but it was the mega-merger with Blue Circle Industries that brought it to pre-eminence. That deal was hard fought, rapidly becoming a hostile takeover after the then-CEO of Blue Circle, Richard Haythornthwaite, decided that the amount that the CEO of Lafarge, Bertrand Coulomb, was offering for his company was not high enough.

A year of claims, counter-claims, offers, rebuffs and haggling ensued, leading to a higher offer that was eventually accepted by the Blue Circle board. However, as Lafarge was a Euro-denominated company and Blue Circle was resolutely British (and was thinking in UK pounds sterling) after exchange rate variations had been taken into account, Lafarge paid less after a year than it had offered in he first place. The British CEO got a big pay-off and went on to greater glory, having appeared to extract a great deal more money (in GB pounds) for his shareholders. Apparently they teach this as a case study in business schools.

Mega-mergers have also shaped other giants in the industry. For example Chichibu-Onoda and Sumitomo-Osaka came together to make Taiheiyo Cement and Ciments Français was added to Italcimenti, although in this last case they still retain their separate identities. Often the deals amount to an accretive takeover by one larger company of a smaller one, but transformative deals consisting of a 'merger' of 'equals' also happen in the cement industry, and with good reason. The merging of research efforts; the optimisation of management; the rationalisation of procurement strategies: all of these will immediately save plenty of money.

However, it's on the financial side that these larger merged companies can sometimes see the most benefit. The cost of borrowing money is inversely proportional to the size of the company (and of the sums involved); the colossal sums demanded by overpaid and greedy bankers will diminish in proportion if the sums involved are larger. So, the cost of borrowing money to be able to invest in takeovers or for capital expenditure will reduce as a proportion of overall cost.

There are other significant potential savings as well, from operational synergies, although these can be harder to quantify and - critically - harder to retain once the competition technocrats have run their slide rules over the proposed deal. They generally do not like too much of the market ending in the hands of too few players.

A good case in point is the recent mega of Tarmac and Lafarge in the UK. To allow the deal to take place the merged company was obliged to sell off one of its key assets, the Hope cement plant, which is now owned and operated by newcomer Hope Construction Materials. Even after the deal has been completed, the market regulator is considering the possibility of making the merged company sell additional facilities, something that strikes Global Cement as 'just not on.'

However, with operations in 90 countries, Lafarge and Holcim can expect to face competition scrutiny in at least 15 countries including Brazil, Canada, Ecuador, France, the UK, the US, Morocco and the Philippines. Meanwhile, in Serbia it has been reported the two companies have a combined market share of 97% across all their business lines!

Lafarge and Holcim have overlapping facilities and distribution networks in a number of countries, and any merged company will probably be required to sell some of them to its competitors. Other companies might be licking their lips at the prospect, as usual CRH is already being lined up in the Irish press, but the units will be sold at a market rate - and not a penny less. It might be that the merged company cannot control which facilities are sold, meaning that they might end up with a less than optimised system. Not so good after all.

If the deal goes through, it will create a Europe-based behemoth with a production capacity of over 200Mt, enough to retain a place on the global top 10 companies with the ever-rationalising and concatenating Chinese companies. When the news first broke we asked what might the new company called? We liked a short mash-up of the two names, like Lolcim (a humorous nod to today's 'youth-speak' perhaps) or Hafarge. However, the level of preparation backing the merger plan soon became clear from financial due-diligence right down to a new name: LafargeHolcim.

Yet for all this co-ordinated work from companies that were meant to be competitors until as recently as March 2014, we should remember what happened to the proposed BHP Billiton-Rio Tinto takeover. Valued at a high of US$170bn it shrivelled up as the global economy collapsed in 2008 amidst concerns from regulators. The idea may be out there but LafargeHolcim has a long way to go before it actually exists.

Worldwide: Lafarge and Holcim have released plans regarding who will lead their proposed merger, LafargeHolcim. The chairman of the new board will be Wolfgang Reitzle, the future chairman of Holcim. Bruno Lafont, chairman and CEO of Lafarge will become CEO of the new group and member of the board.

Thomas Aebischer, Holcim's CFO will become CFO of the new group. Jean-Jacques Gauthier, Lafarge's CFO will become chief integration officer of the new group. The Executive Committee will be formed from both Lafarge and Holcim management.

In order to ensure efficient execution of the merger, an integration committee will prepare the integration plan to be implemented straight after the closing of the transaction. Bernard Fontana, Holcim's existing CEO will remain in charge of Holcim until completion of the transaction. He will co-chair the integration committee.

The merger is expected to be completed in the first half of 2015 subject to shareholder approval and regulatory approval in the many countries that the two multinational building materials producers operate in.