HeidelbergCement to buy 45% of Italcementi for €1.67 bn --> +ve for Buzzi see attached note on Europe cement & Buzzi
* HeidelbergCement to buy 45% stake in Italcementi at 61% premium
HeidelbergCement has announced that it has entered into a purchase
agreement with Italmobiliare SpA to acquire its c.45% stake in Italcementi
at €10.60 per share, a 61% premium to the last close price (July 28). On our
2015 forecasts, this would imply an EV/EBITDA multiple of 9.8x (excluding
synergies). The proposed deal, which would subsequently trigger a
mandatory public offer for the rest of Italcementi, is expected to close in
2016.
* Complementary fit, cyclical potential and synergies drive deal
HeidelbergCement management cited its key rationales for the proposed
deal as being (1) a complementary geographical fit with Italcementi, (2) the
right point in the cycle to benefit from cyclical recovery in some of
Italcementi’s markets such as Spain and Italy, (3) potential synergies.
Management is targeting a minimum run-rate of €175 mn synergies by
2018 and believes that it can achieve c.30% of synergies in 2016, mainly
from operational and SG&A savings. It will also be targeting capex savings
of €1.3 bn pa over five years and working capital savings of €100 mn
through 2016.
* Minimal impact to industry structure, in our view
The combined group would have cement capacity of c.190mta, making it the
global number two. While we do not take a view on the outcome of the deal,
the proposed acquisition would be largely complementary in terms of
geographical overlap (see Exhibit 1) and as such, we believe impact to
industry structure would be limited. There is no geographical overlap in
Europe, overlap in just two US states and limited regional overlap in India
and Canada (see Exhibits 3-4). We therefore do not see an obvious impact to
what is a very local business. While there is also an overlap in Kazakhstan,
we note this has no implication for other companies within our coverage.
* Positive read-across for assets exposed to recovery, such as Buzzi
Given the agreed deal with Italmobiliare, we view rival bids as unlikely;
however, we note the announced offer premium vs. the current share price
for Italcementi. Also, as market recovery potential was cited as one of the key
drivers of the proposed deal, we think this announcement provides positive
read-across for similar assets – we highlight Buzzi (CL-Buy, €14.58).