Holcim-Lafarge merger stirs cement market

While mega-mergers have faded from view in the mining industry, the global cement industry showed in early April that it’s still capable of serving up a doozy: a friendly, all-share merger of Switzerland’s Holcim and Paris-based Lafarge to create the world’s largest-ever cement company. The two rake in a combined US$44 billion in annual revenue from cement, crushed stone, and sand and gravel.

Lafarge shareholders would receive one Holcim share for each Lafarge share held, and the combined company would be based in Switzerland and listed in Zurich and Paris. Current Holcim shareholders would own 53% of the expanded company, which would have a combined market capitalization of US$60 billion at today’s valuations.

Montreal-based Power Financial owns an indirect interest in Lafarge, and Power co-chairman Paul Desmarais Jr. is a Lafarge director. Other billionaires with stakes in one or both companies include Albert Frère, Thomas Schmidheiny, Nassef Sawiris and Filaret Galchev.

Lafarge CEO Bruno Lafont would lead the new company. He said in a conference call that to get the deal past regulators in more than a dozen countries, he estimates the companies would need to sell assets representing 18% of revenues, especially ones located in Western Europe.

Lafarge and Holcim together employ roughly 9,000 people in Canada, and control half the market. Lafont said assets in Canada and the U.S. — the source of US$7.8 billion in annual sales for the duo — may be sold to help complete the merger, and that assets in Brazil, China and India would also be on the block.

Holcim and Lafarge are present in 90 countries, with significant assets in Europe, North America and many developing countries, where building basic infrastructure has been a strong source of growth for both, accounting for 60% of revenue.

However, the 2008–2009 global recession and slow recovery has softened demand for building materials and instilled chronic overcapacity in the global cement industry. And so, the two companies anticipate the merger could lead to US$1.9-billion in savings as poor performers are sold, downsized or closed, and benefits are reaped from lower borrowing costs, economies of scales and other operating efficiencies.

The combined Lafarge–Holcim would reclaim the crown of largest cement maker by volume from China’s Anhui Conch, and leave in the dust rival cement majors such as Germany’s HeidelbergCement and Mexico’s Cemex.