Cement makers: footprints
Case for letting Lafarge and Holcim merge is already at risk
Lafarge cement trucks wait to be loaded at the Lafarge cement terminal in Paris©Bloomberg
Any regulator who lets through a merger simply because the parties promise a “European champion” needs a cold shower. If the merger already involves two big players in an industry with huge overlaps, then turn down the temperature further.
The case for letting Lafarge and Holcim merge into a cement giant is already at risk of championitis. It is easy to romanticise a combined company that would have a global “footprint” – important, when cement is sold locally – years before rising rivals in China or Latin America achieve it. Romantic, maybe. But not necessarily protective of customers in Europe (or value-creating for shareholders). Regulators should focus on whether the assets which Lafarge and Holcim might divest in Europe could credibly create a sizeable new competitor.
So far, €5bn in assets have been put forward by the companies, enough to cut the European share of their combined portfolio from a third to a fifth. Regulators could demand more. Interestingly, they did hew a fresh entrant out of recent dealmaking in the sector, Mittal Investments-owned Hope Construction Materials. Now one of the UK’s largest independent cement suppliers, Mittal bought these assets as part of the remedy for Lafarge’s joint venture with Tarmac.
Hope was in part a bet on a UK recovery. Similar calls in the several European countries where the overlaps exist between Lafarge and Holcim may not be as appealing for big private buyers. That leaves major players lower down the list. Some of these are already dealing with their own capacity issues. Mexico’s Cemex, for example, sold a tenth less cement last year than in 2009, Morgan Stanley has estimated, and has $16bn in debt. Other EM players – Nigeria’s Dangote cement, anyone? – may see value in diversifying into Europe. A big step for it. The buyers may need some cold showers, first.