The world two largest cement producers are understood to have agreed the terms of a US$50 billion (€36.5 billion) merger, in the industry's biggest ever tie-up
It is understood that
Further details are expected today (Monday).
Lafarge Chief Executive Officer Bruno Lafont will become CEO of the combined entity while the chairman will be Swiss, say the reporr,.
In initial statements on Friday, the French group Lafarge, and Swiss-based Holcim confirmed they were in discussions “regarding a possible combination.”
Both believe that “given the strong complementarity of their portfolio and the cultural proximity between the two companies, there is rationale in considering a potential merger that could deliver significant benefits to customers, employees and shareholders.”
The discussions are based on principles consistent with a merger of equals which build on the strengths and identities of the two companies.
“No agreement has yet been reached and no assurance can be given that these discussions will lead to a definitive agreement,” say the companies in statements.
Any merger will come under the scrutiny of competition authorities, but it could lead to a worldwide mega cement company. The grouping would have a dominant position in both Europe and the United States.
Regulators would probably require the companies to shed cement plants and distribution facilities before approving any merger as happened recently in the Lafarge-Tarmac tie-up in the UK. This was only agreed by the
Lafarge, the world’s largest cement producer, and Holcim, also have major interest in aggregates and concrete.
In 2013, Holcim had reported a 6.8% decline in its net sales at CHF 19.719 billion (€16.4 billion), while its net income had risen by over 59% at CHF 1.596 billion (€1.3 billion).
Lafarge and Holcim could complement each other well geographically with Lafarge having a strong presence in Africa and the Middle East, while Holcim is strong in Latin America. Indeed, the company said in August it and Cemex had to exchange some assets and combine others in Europe.
Lafarge employs some 65,000 workers in 64 countries while now has about 71,000 employees in 70 countries, and they have overlapping capacity France, Germany, Spain, Czech Republic, Romania and Serbia.
Both companies have reduced debt over the past few years through special initiatives having taken on big debts to help expand in emerging markets, where infrastructure and building developments have seen a huge rise in the call for building materials.
But this was followed by the bursting of the US housing bubble, the European debt crisis, and a collapse in demand, while Lafarge suffered from the Arab Spring sparked which followed its €8.8- takeover of Egypt's Orascom Cement in 2008. Add to this big rises in energy prices, and many plants are now running below capacity.
It has been estimated the merger will help Lafarge halve its fixed and variable costs, while for Holcim, with a better credit rating than Lafarge, the combination would be able to attract lower borrowing costs.
