Holcim-Lafarge deal may hit CCI hurdle

Tags: News
The mega merger of France's Lafarge and Switzerland's Holcim is likely to come under the Competition Commission of India (CCI) scanner, as the combined entity will become the largest player in the country with an installed capacity of 66.9 million tonnes.

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

Stockbroking.

"If the deal goes through, the combined entity will have 18 per cent

of India's total cement production capacity of 368 million tonnes,"

Ravi said.

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

billion.

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

economic crisis.

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.

jharnamazumdar@mydigitalfc.com

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