Holcim Ltd. (HOLN) and Lafarge SA (LG), whose boards approved a merger to create the world’s biggest cement maker, will be led by the French company’s chief executive officer, Bruno Lafont, said people familiar with the matter.
The Lafarge executive’s appointment may be announced as early as today along with the all-share merger, which will create a company with $40 billion in sales, the people said, asking not to be identified because discussions are private.
The new company, which would help cut production overcapacity and energy costs, plans to retain dual Swiss and French stock-market listings and operating headquarters, they said. The merger of equals would build on their “strengths and identities,” Jona, Switzerland-based Holcim and Paris-based Lafarge said April 4 after confirming a Bloomberg News report about the talks.
A deal would let the two producers cut costs by combining operations as some of the industry’s kilns run at a loss after the recent global recession eroded demand. To improve returns from plants with high energy consumption, Holcim in August agreed to swap assets in Germany and the Czech Republic with Monterrey, Mexico-based Cemex SAB (CX:US), the biggest cement maker in the Americas.
Lafarge on April 4 rose 8.9 percent in Paris, giving the company a market value of 18.4 billion euros ($25.2 billion) while Holcim gained 6.9 percent in Zurich, valuing the firm at 26.2 billion Swiss francs ($29.4 billion) after they confirmed talks. Representatives for Lafarge and Holcim declined to comment on any details of the merger beyond the company statements.
“There is still massive oversupply in the industry,” Ian Osburn, an analyst at Cantor Fitzgerald, said in an interview. A deal would help Holcim and Lafarge to “cut a lot of costs and dominate a few more markets.”
An acquisition spree before the financial crisis, including Lafarge’s 10.2 billion-euro purchase of Orascom Cement in 2008 and Holcim’s $4.1 billion deal for Aggregate Industries in 2005, widened the dominance of both companies.
A transaction may face scrutiny from regulators in markets around the world, and Osburn said the companies would need to sell assets in Europe and the U.S. The deal would face reviews in Europe, especially in France, as well as in Spain and Germany, he said, while regulators in Russia, Hungary and the Czech Republic may also examine the transaction.
Lafarge estimates in its 2013 annual report that last year it had a cement market share of 34 percent in France, 40 percent in the U.K. and 10 percent in Germany and Spain. It had a market share of 12 percent in the U.S. and 7 percent in Russia. Holcim didn’t provide market shares for individual markets.
Holcim now employs 71,000 people in about 70 countries while Lafarge has about 65,000 workers in 64 markets.
News of the discussions on April 4 lifted construction and materials shares in Europe, helping the Stoxx Europe 600 Index rise to a six-year high. Germany’s HeidelbergCement AG, the world’s third-largest maker of cement, rose 4.3 percent in Frankfurt.
At 181-year-old Lafarge, Lafont has been slashing spending, pushing sales of higher-margin services and selling assets to repair a credit rating that has fallen one level below investment grade amid a slump in European construction and rising energy prices.
Holcim CEO Bernard Fontana became the first outsider to lead Holcim when he joined the 102-year-old Swiss company in February 2012. Drawing on his past experience of overhauling steelmaker Aperam, the French national has embarked on a similar cost-cutting program, using the same “Leadership Journey” label he employed in his prior post.
Lafarge’s 750 million-euro 4.75 percent notes rose as much as 3 percent to 111 cents on the euro, based on data compiled by Bloomberg. Moody’s Investors Service rates Lafarge Ba1 and Holcim two levels higher at Baa2.
At least four billionaires own shares in Holcim or Lafarge, including Egypt’s richest person, Nassef Sawiris, Belgium’s Albert Frere, Switzerland’s fourth-richest individual, Thomas Schmidheiny, and Georgia-born Filaret Galchev, according to data compiled by Bloomberg.
Both companies said this year that demand for their offerings is improving amid a global economic recovery. Holcim in February forecast improved cement shipments this year. The same month, Lafarge reported earnings that beat analyst estimates and also predicted rising demand.
“This is traditionally the time when you’d see M&A in these sectors in upswings, when profits and margins are improving,” Cantor Fitzgerald’s Osburn said.
To contact the reporters on this story: Matthew Campbell in London at firstname.lastname@example.org; Francois de Beaupuy in Paris at email@example.com; Patrick Winters in Zurich at firstname.lastname@example.org
To contact the editors responsible for this story: Simon Thiel at email@example.com; Aaron Kirchfeld at firstname.lastname@example.org Aaron Kirchfeld