Holcim and Lafarge will announce plans to sell close to $1bn worth of production facilities on Monday as they try to offset a regulatory backlash over their proposed $40bn all-share merger to bring together the world’s two larger cement makers.
The planned divestitures will represent capacity equivalent to 10 per cent of the combined company’s earnings before interest, tax, depreciation and amortisation, according to people familiar with the matter. That figure stood at $8.7bn at the end of 2013.
The pre-emptive move underscores the companies’ expectations of a tough battle to convince regulators of the merits of joining the largest players in an industry that has long been the subject of antitrust concerns.
The cement market is dominated by four global players, all of which have been under investigation by the European Commission for cartel behaviour and price-fixing since 2008.
The blockbuster deal, which the companies said would be a “merger of equals”, will see Switzerland’s Holcim launch a public takeover for French rival Lafarge in shares with a roughly 50:50 split.
The merger, signed off by the boards of France’s Lafarge and Switzerland’s Holcim over the weekend, will create a group with combined sales of $40bn that will reshape a global cement industry that has for years been plagued by chronic overcapacity. The companies have agreed the terms of that will see Lafarge chief executive Bruno Lafont take the top job at the new industrial giant headquartered in Paris and Zurich.
The two groups have very similar market capitalisations at around €18bn.
The agreement comes amid the fastest start to the year in global M&A since 2007, according to Dealogic, with a series of transactions worth more than $10bn underpinning the market’s return to form.
The details of the deal are set to be announced as early as Monday morning, according to people close to the discussions. Both companies declined to comment, but said on Friday that they were in late stage merger talks.
Bruno Lafont, chief executive of Lafarge since 2006, is set to become chief executive of the whole group. Thomas Aebischer, Holcim chief financial officer, and Rolf Soiron, Holcim chairman, are set to take the same roles but at a group level.
People close to the talks said that consultations have already begun on possible areas where the two companies will need to sell assets to appease competition authorities, with much of the divestments likely to be focused on the developed markets.
Holcim provides no figures but Lafarge estimates that it has 34 per cent of the market in France, 40 per cent in the UK, and 10 per cent in Germany and Spain. More than 40 per cent market share is the rule of thumb for competition problems.
Discussions between the companies have been going on for three months. Lafarge is being advised by BNP Paribas, Morgan Stanley, Rothschild and the Zaoui brothers. Holcim is working only with Goldman Sachs, with FX de Mallmann, the bank’s head of consumer retail, leading the talks.