Cement giants Holcim and Lafarge announce merger of equals

Two of the world's biggest cement companies, Holcim of Switzerland and Lafarge of France yesterday agreed to merge, creating the world's biggest cement maker, with a market cap of $50 billion and annual sales of nearly $43 billion.

The transaction is the second-biggest M&A deal announced this year, after Comcast Corp agreed in February to buy Time Warner Cable for $45 billion.

The cement giants, whose operations spread across 90 countries, including India, plan to sell assets, mostly in Europe, representing about 18 per cent or about €5 billion of their combined annual revenue.

The merged company, to be called LafargeHolcim, will be based in Switzerland, listed in Zurich and Paris, have a workforce of 136,000 people and generate annual savings of more than €1.4 billion ($1.9-billion) over three years.

The transaction, structured as a public exchange offer initiated by Holcim, would see Lafarge shareholders receive one Holcim share for every Lafarge share. Post closing, Holcim shareholders would own 53 per cent of LafargeHolcim, while the remaining 47 per cent by Lafarge shareholders.

Lafarge chairman and CEO Bruno Lafont would serve as CEO of LafargeHolcim, while Holcim board member Wolfgang Reitzle having been tapped to become chairman.

Despite the planned sale of certain assets, which could be mainly in Western Europe, and also Canada, the US, Brazil, India, Serbia, Romania, Hungary, Morocco, Philippines and China, the merger is expected to attract antitrust issues from regulators in about 12 countries, especially since both companies, along with others, are currently under an European Commission (EC) probe for price fixing.

Lafarge had been been fined by the EC for price-fixing in 1994 and again in 2002, while the Brussels-based regulator is investigating Holcim's acquisition of Mexico's Cemex' operations in Germany. (See: European regulator launches probe into Cemex-Holcim German deal)

Both companies were also fined 50 per cent of their average profit for fiscal years 2010 and 2011 by the Indian antitrust regular in 2012 for cartelisation. (See: Competition panel imposes Rs6,300-crore fine on 11 cement companies)

The merger would also see the annual sales Lafarge-Holcim more than double that of its next-biggest competitor, HeidelbergCement AG of Germany, and far above Beijing-based China National Building Materials Group Corp, and Cemex SAB.

The Indian regulator, Competition Commission of India (CCI) said that it will look closely at the merger since the merged company will be the largest producer in India after Aditya Birla group's UltraTech and could have a sway over pricing.

The merger will allow the new company to expand and fight for market share in a fragmented and highly concentrated global market.

Lafarge has a strong hold in Africa and the Middle East, while Holcim has a meager presence in these regions, but Holcim is strong in Latin America, where Lafarge has no presence.

Founded in 1833, Paris-based Lafarge has 161 cement plants in 58 countries and more than 1395 aggregates and concrete production facilities in 36 countries.

Holcim has production sites in around 70 countries and a market presence on every continent.

The 102 year-old company recorded net sales of over 19.7 billion Swiss francs in 2013.