Holcim cements Lafarge deal

The world’s two biggest cement makers are joining forces. Holcim of Switzerland is set to take over France’s Lafarge, offering one of its shares for one Lafarge share and creating a group with combined sales of €39bn.

The new behemoth, which will be domiciled in Switzerland, expects to spend €1bn on the deal and hopes to achieve annual savings of €1.4bn by 2017.

What the commentators said

Lafarge and Holcim want to complete the merger in the first half of 2015, said Nils Pratley in The Guardian. “That’s optimistic”. In the cement industry “investigations into allegations of cartel behaviour are a semi-permanent state of affairs”.

It’s a highly concentrated sector, with just six firms comprising 40% of the global market outside China, and governments buy lots of cement, so they “want to know they are not being diddled”. No wonder UBS thinks regulators could take two years to look at this deal.

The firms have offered to sell assets accounting for 10%-15% of sales. These could go to rivals in Europe, giving them a boost, said Lex in the FT. But with 15 regulators in the mix, more sales may be needed, which could end up scuppering a deal.

Still, as Glencore/Xstrata showed, “where there’s a will to get a deal done, there’s usually a way to buy the watchdogs off, figuratively if not literally”, said James Moore in The Independent. And the pair need to join forces.

They have too much capacity because growth from emerging markets hasn’t (so far) come through, and both took on a great deal of debt in the go-go years, which has hit profitability.

But another worry for investors should be the deal’s structure. ‘Mergers of equals’ tend to be “hastily bolted together” with the main jobs assigned for political reasons and not based on merit. They are “rarely satisfactory and never truly equal”.

Merryn

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