Holcim, Lafarge may retain Swiss, French listings and headquarters after merger

NEW YORK: Holcim and Lafarge, in talks to create the world’s biggest cement maker to cut production overcapacity and energy costs, plan to retain dual Swiss and French stock-market listings and headquarters, according to people familiar with the matter.

An all-share merger, creating a company with $40 billion in sales, will likely be announced as early as Monday, the people said, asking not to be identified as discussions are private.

The companies are exploring a merger of equals that would build on their “strengths and identities,” Jona, Switzerland-based Holcim and Paris-based Lafarge said on April 4 after Bloomberg News reported the discussions.

A deal would let the two producers cut costs by combining operations as some of the industry’s kilns run at a loss after the recent global recession eroded demand.

To improve returns from plants with high energy consumption, Holcim in August agreed to swap assets in Germany and the Czech Republic with Monterrey, Mexico-based Cemex SAB, the biggest cement-maker in the Americas.

Lafarge on Friday rose 8.9 per cent in Paris, giving the company a market value of 18.4 billion ($25.2 billion) while Holcim gained 6.9 per cent in Zurich, valuing the firm at 26.2 billion Swiss francs ($29.4 billion) after they confirmed talks.

Representatives for Lafarge and Holcim declined to comment on any details of the merger beyond the company statements. “There is still massive oversupply in the industry,” Ian Osburn, an analyst at Cantor Fitzgerald, said in an interview. A deal would help Holcim and Lafarge to “cut a lot of costs and dominate a few more markets.”

Regulatory Scrutiny

An acquisition spree before the financial crisis, including Lafarge’s 10.2 billion purchase of Orascom Cement in 2008 and Holcim’s $4.1 billion deal for Aggregate Industries in 2005, widened the dominance of both companies.

A transaction may face scrutiny from regulators in markets around the world, and Osburn said the companies would need to sell assets in Europe and the US. The deal would face reviews in Europe, especially in France, as well as in Spain and Germany, he said, while regulators in Russia, Hungary and the Czech Republic may also examine the transaction.

Lafarge estimates in its 2013 annual report that last year it had a cement market share of 34 per cent in France, 40 per cent in the UK and 10 per cent in Germany and Spain. It had a market share of 12 per cent in the US and 7 per cent in Russia.

Holcim didn’t provide market shares for individual markets. Holcim now employs 71,000 people in about 70 countries while Lafarge has about 65,000 workers in 64 markets.

Cost Cuts

Holcim CEO Bernard Fontana became the first outsider to lead Holcim when he joined the 102-year-old Swiss company in February 2012.

Drawing on his past experience of overhauling steelmaker Aperam, the French national has embarked on a similar cost-cutting program, using the same “Leadership Journey” label he employed in his prior post.