The world’s two largest cement makers, France’s Lafarge and Switzerland’s Holcim, are in advanced talks to merge into a company with a stock market value of over $50 billion in what would be the industry’s biggest ever tie-up.
The discussions, which are likely to draw close scrutiny from European competition watchdogs, are “based on principles consistent with a merger of equals”, the two companies said in identical statements.
They said no agreement had yet been reached and that there was no guarantee of a deal, but there was a “strong complementarity” and “cultural proximity” between the groups.
A merger would help Lafarge and Holcim slash costs, trim debt and better cope with the soaring energy prices and weaker demand that have hurt the sector since the 2008 economic crisis.
But any deal is likely to draw scrutiny from European competition watchdogs, as a Lafarge-Holcim entity 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.
Such a merger would create a giant with combined sales of over $40 billion and would be Europe’s biggest tie-up this year, Thomson Reuters data shows, based on the cost to acquire the target and assuming that Lafarge, with the smaller market value, is the target company.
Shares in Lafarge and Holcim jumped to four-year highs on the news, lifting the entire cement sector.
Lafarge, whose cement helped build the Suez Canal in the 1860s and the Nazi bunkers that dot France’s Atlantic coast, employs around 65,000 workers in 64 countries. Holcim, which was founded in 1912, now has about 71,000 employees in 70 countries.
Both companies have significant and overlapping capacity in countries such as France, Germany, Spain, Czech Republic, Romania and Serbia, said Morningstar analyst Elizabeth Collins.
Lafarge estimates in its annual report that it has a cement market share of 40 per cent in the UK, 34 per cent in France, 33 per cent in Canada and 12 per cent in the United States. It goes above 30 per cent in several east European and African countries.
Lafarge, whose debt pile has drawn “junk” ratings from credit rating agencies Standard & Poor’s and Moody’s, aims to regain an investment grade by year-end.