Holcim-Lafarge deal may hit CCI hurdle
Apr 07 2014 , Mumbai
The two firms on Monday unveiled an all-share merger deal, creating the world's biggest cement company with combined sales of 32 billion euros.
In India, the Holcim-controlled ACC and Ambuja Cements have 30 million tonnes and 28 million tonnes capacities, respectively, while Lafarge Cement has a capacity of 12 million tonnes.
"Like all deals, this one too will come under the CCI scanner. Holcim has its subsidiaries ACC and Ambuja in India, and the company will have a stronger foothold in the eastern region after the merger. Some logistic-sharing and rationalisation of overheads are expected if the deal goes through," said Shriram Subramanian, founder and managing director of proxy advisory firm InGovern.
He, however, said more clarity was needed on what the combined entity intended to do with its Indian operations.
A senior official at CCI told Financial Chronicle that the companies
had not yet filed any papers with the competition watchdog, and it
would look into the issue when it received the deal papers.
"Cement is unique as regional dynamics play an important role in the
business. CCI scrutiny is essential to look at both national and
regional dynamics," said Rajesh Kumar Ravi, an analyst at Karvy
"If the deal goes through, the combined entity will have 18 per cent
of India's total cement production capacity of 368 million tonnes,"
In the face of CCI raising objections, the companies would have no
option but to sell assets, said an Elara Capital analyst, who was not
willing to be identified.
"Any deal by Lafarge and Holcim will have a significant impact on the
local cement industry, and CCI may insist on asset disposals as the
combined entity will become a leading player and will have an
overwhelmingly dominant position in key regions," Elara analyst said.
Cement stocks gained in Mumbai trading on Monday amid the hope of
consolidation. While ACC and Ambuja Cements gained 1.2 per cent and
2.71 per cent, respectively, UltraTech Cement surged 3.24 per cent.
Among the mid-cap players, India Cements gained 1 per cent and Prism
2.25 per cent.
Holcim and Lafarge said the deal was a merger of equals, under which
Lafarge shareholders would receive one Holcim share for every Lafarge
share held. The combined group will be based in Switzerland and listed
in Zurich and Paris. The combined group will be worth about $60
Holcim shareholders will have 53 per cent control of the new entity,
while Lafarge shareholders will hold the remaining stake, the two
companies said in a joint presentation.
The deal, biggest tieup in the industry, will help the companies slash
costs, trim debt and better cope with soaring energy prices, tough
competition and weaker demand that have hurt the sector since the 2008
Holcim chairman Rolf Soiron said in a statement, "LafargeHolcim will
be uniquely positioned to take advantage of the growth in developed
markets and the world's fastest growing economies by supplying the
materials that will enable the construction industry to meet the
challenges of the future."
The merged group will be present in 90 countries, with emerging
markets such as Latin America and Africa accounting for 60 per cent of
sales, but no single country represents more than 10 per cent.
"The new group will offer higher growth and low risk, thus creating
more value," said Lafarge chief executive Bruno Lafont, who has been
named the CEO of LafargeHolcim.
The companies added that with the merger they expected total annual
savings of 1.4 billion euros after three years due to economies of
scale, better operational efficiency and lower financing costs.
However, the deal is expected to draw scrutiny from competition
watchdogs in the countries where they are present, analysts said.