WSJ : Holcim, Lafarge Cement Merger Still Work in Progress

Holcim, Lafarge Cement Merger Still Work in Progress
Investors Right to Be Cautious About What Merger Can Achieve

When building a skyscraper, it pays to start with solid foundations.

So Switzerland's Holcim HOLN.VX +0.56% and French peer Lafarge LG.FR +0.86% reckon they can find €1.4 billion in annual cost and financing savings in their €40 billion ($55 billion) merger. The cement companies think disposals representing up to 15% of combined earnings before interest, tax, depreciation and amortization should placate regulatory worries about combining the world's two biggest cement companies by capacity.

But are the numbers, both bigger than analysts expected, realistic?

At about 3% of the combined LafargeHolcim's sales, the estimate for savings at the Ebitda level is about in line with realized savings in past cement deals, according to Exane. When compared with combined procurement spending of about €25 billion, for example, savings of €340 million—or about 1.4%—look achievable.

Some context is in order, though. Both companies have independently been slashing costs already, after spending in the run-up to the financial crisis left the industry with too much capacity in developed markets and bloated expenses. They have about €2.2 billion a year still to find on previously announced cost-cutting and sales-improvement programs, notes Deutsche Bank. Added in, that takes the total target to a more ambitious 10% of combined sales.

It will also take until 2017 to reap those benefits—and that assumes a relatively smooth ride from antitrust regulators. LafargeHolcim's market share would be more than 40% in nine countries, including France, Canada and the Czech Republic, with more moderate overlap in a further 11, notes Goldman Sachs. Regional concentration, even across borders, could throw up further issues.

Regulators in Europe, where most disposals are expected, have taken their time considering a separate asset swap between Holcim and Mexico's Cemex. Politicians will be alive to the risk of plant closures. Emerging markets, expected to account for 84% of cement consumption by 2030, may be wary of handing producers greater pricing power.

Regulators could also take issue with the quality, as well as the quantity, of assets being sold: LafargeHolcim's proposed disposals have an Ebitda margin of 16% compared with 24% for the newly created company.

Hence, while proposed synergies could add 20% to the new cement giant's bottom line by 2017 according to Deutsche, LafargeHolcim's combined market value has risen less than 10% since news of the deal surfaced last week. That looks sensible for a deal that remains very much a work in progress

(MKR) Makor - TECH VIEW YAHOO US (33.50 last) - Buy at market price, target $40

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Makor - TECH VIEW YAHOO US (33.50 last) - Buy at market price, target $40 2014-04-07 15:06:30.559 GMT

Summary

- The stock lost nearly 18% in the past month but is now testing the rising trend line and 200dma -As long as the stock can remain above 31.70 (recent low) a move higher is our prefared scenario -Eventually, will need to see a sustain move back above 34.45 (bottom of corrective wave 'A') to argue for a low in place

Strategy: Long from market price, target 40.00 with a stop loss below 31.70

CHART ATTACHED

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-0- Apr/07/2014 15:06 GMT

FT : Holcim and Lafarge outline cement merger deal

Holcim and Lafarge outline cement merger deal

An employee arranges cement bags at Switzerland's Holcim cement production plant in Siggenthal August 19, 2008. REUTERS/Christian Hartmann (SWITZERLAND) - RTR21EF5©Reuters
Holcim and Lafarge, the world’s largest cement makers, set out their proposed €39bn merger on Monday, raising the prospect of a swath of takeover activity across the building materials industry.
Revealing details of a deal styled a “merger of equals”, the partners said Holcim of Switzerland would take over Lafarge of France, offering one Holcim share for one Lafarge share, to create a global cement giant with combined sales of €39bn and earnings before interest, tax, depreciation and amortisation of €6.5bn.

Shares in Lafarge rose 4 per cent, the top gainer on France’s blue-chip CAC 40 index, while shares in Holcim were up 5.4 per cent in early morning trading.
The merger, under discussion since January, is set to trigger a wave of disposals worldwide and competition issues in at least 13 countries, ranging from Madagascar to France, Spain and the Czech Republic.
Ian Osburn, analyst at Cantor Fitzgerald, declared the sector “open” for mergers and acquisitions. “This is normally the most attractive time to do it at the start of the upswing and some of the other global majors may be feeling in a weakened position trying to compete with a combined Lafarge/Holcim,” he said.
Potential deals could involve Dangote Cement in Nigeria, Votorantim in Brazil or Vulcan Materials, analysts said.
Both partners said they expect the divestment programme to be completed by the time the deal closes in the first half of 2015, with two-thirds of the sales in Europe, where there is significant overcapacity in the cement market.
“We have had strong signals of interest of different kinds, although we could not yet open specific negotiations,” Rolf Soiron, the outgoing Holcim chairman, told the Financial Times. “The interest is more than hope.” He added that they were targeting asset sales of 10-15 per cent of ebitda and had already opened discussions with the European Commission, the executive arm of the EU.
Bruno Lafont, chief executive of Lafarge, will take up the same role in the combined group, while Holcim’s chairman designate Wolfgang Reitzle, will become group chairman.
Management said the move was not defensive but a side effect is likely to be accelerated margin recovery on cost savings. “When margins and cash flows are booming large mergers rarely look good compared to other growth investment but management and major shareholders are clearly impatient for improvement,” said Mr Osburn.
The global cement market is already heavily consolidated with four top cement producers – Holcim, the largest, with total sales of $22bn; followed by Lafarge, with sales of $20.8bn; HeidelbergCement of Germany, at about $18bn; and Mexico’s Cemex with $15.2bn. All have faced a series of competition investigations worldwide, including an investigation by the European Commission for cartel behaviour and price-fixing since 2008.
Christian Stadler, associate professor of strategic management at Warwick Business School, said there were question marks as to whether a merger on this scale will work. “There are lots of examples of megamergers destroying value rather than enhancing it,” he said. “A prime example comes from the car industry when Daimler and Chrysler merged, both companies lost billions of pounds before they agreed to part again. When BP merged with Amoco in 1998 they had many problems in terms of increased complexity and duplications, it certainly affected BP’s performance for a long time.”
Mr Lafont said the merger had been discussed with France’s Socialist government, which is highly sensitive to industrial mergers that could result in redundancies. He said the group’s research centre would be in France and “we are not talking about plant closures”, adding there would be a “very limited impact on employment”.
The new LafargeHolcim would be listed on the Six exchange in Zurich and Euronext Paris, with its domicile in Switzerland. Each company will have seven representatives on the board of the merged group. The merger was signed off by the boards of both companies over the weekend.

>>>ECB Coeure on QE : Yes, there is unanimity in the Council of Governors to be

Link to Google Translation :{http://bit.ly/1qe4tJH}
Link to original article : {http://bit.ly/1oGJGD7}

Interview with Le Figaro

Intervention Cœuré Benedict, a member of the ECB Executive Board,
Alexandrine Bouilhet, Le Figaro, done April 4, 2014

Le Figaro:-The rise of financial markets is not it disconnected from economic reality?

Benoit Coeuré: Markets anticipate an economic recovery. This is a good sign, and we think they are right! This is not a bad thing to anticipate a recovery! At the ECB we believe that recovery is already there, but we know gradual and fragile and therefore we want to accompany it with even lower low interest rates over an extended period.

This increase does not she already makes bubbles?

Not in euro area, from our point of view. But in a period of very low interest rates, vigilance is required. If this risk materializes, supervisory authorities of the Member States have new instruments called "macroprudential", not to mention other macroeconomic measures.

The ECB is she really ready to move into quantitative easing (QE)?

Yes, there is unanimity in the Council of Governors to be prepared to use unconventional instruments, including this one, if the current period of low inflation extends more than expected. Today, it does not seem necessary, since the low level of inflation is due to temporary factors and we believe part to recovery: inflation should rise. But we will continue to monitor developments very closely and act if necessary.

What QE does it help the recovery of the credit?

This is the question! Although the QE means more liquidity in the banks' balance sheets, it is not sure that it creates credit. The ECB can not substitute for bank rehabilitation. Review of bank balance sheets that we conduct in 2014 will help. QE in Europe would necessarily be different from what is practiced in the United States.

In talking, Mario Draghi has lowered the euro. Why?

Market participants have now understood that the exchange rate is not an objective of monetary policy, but it is nonetheless an important variable in our decision, as it influences the evolution of prices . In times of low inflation, the effects of movements in exchange rates are subject to careful monitoring.

What would it take for the euro fell more?

If the euro is at this level against the dollar, it is also because the euro area recorded a surplus of its large current account - [note: 286 billion euros planned in 2014] - and is growing. This is new. Before, the current account of the euro area was rather balanced. This is because Germany, for example, exports too, as we hear sometimes, but because domestic demand in the euro area is depressed. From this point of view, the best response is to support domestic demand by investing, and it is also a way to prepare for the future of Europe! But these issues are beyond the exchange rate only European framework.

At $ 1.37, the euro is overvalued it not for France?

France is in a particular situation in the euro zone because it is the only country in the region to have a current deficit as important today - [note: 36 billion euros in 2013] -. Response through increased competitiveness, as provided by the Government.

France requested a new deadline for its deficits: Does the risk of sanction markets?

Expectations of Europe against France are strong, because it is the second largest economy in the euro area. The eurozone needs a strong France. France also has a responsibility to make credible economic government of the euro area it called for and gradually put in place. This provides governance objectives nominal and structural deficits. As recalled by the European Commission, France has already benefited twice deferred. It must meet its commitments. It is a question of credibility and trust.

France can do without the euro?

Without the European Union without the euro, France is an average power vulnerable because indebted and with declining productivity. The euro and Europe in France offer a protection that allows it to remain master of its destiny by managing her own reform process.

>>>Nasdaq 100 (NDX) - down 2.6% on friday, -0.56% again today

Important levels have been broken on Friday - Keep an eye on it , could be one of the resaon why we should continue to see Europe Outperforming US on the next few days...

Long Europe Stocks vs Short US Index...

{SX5E Index SPX Index GRT D<GO>} already 5% Outperformance since mid March

{SX5E Index NDX Index GRT D <GO>} already 10% Outperfrmance since Mid March

>>> Japan's GPIF (world's largest pension fund) expects downside risks to JGB in


Japan's GPIF (world's largest pension fund) expects downside risks to JGB investments; positive on PE and infrastructure invesmtents assuming domestic debt levels come down
**Reminder: Last November, the GPIF advisory panel issued a report calling on the fund to review the domestic bond-focused portfolio and diversify investments. On March 5th, the advisory panel said the GPIF no longer needed to focus on domestic bonds in portfolio allocations as Japan emerges from deflation.