Lafarge and Holcim to sell 43 pct of local production capacity, says Deutsche Bank

Construction materials manufacturers Lafarge and Holcim will need to sell 43 percent of their combined production capacity in Romania in order to obtain competition authorities’ approval for a merger, according to analysts from Deutsche Bank cited by the Wall Street Journal.

French Lafarge and Swiss Holcim announced last week that they had reached an agreement to merge their global activities. Bruno Lafont, head of Lafarge and of the future LafargeHolcim giant, said in a press conference that no production facilities would be closed and there would be only a small impact on the number of employees. However, the companies will have to sell assets worth 10-15 percent of their EBITDA to obtain regulatory approval for the merger. About two thirds of the divestitures will have to take place in Europe. Deutsche Bank representatives have indentified eight countries where, following the merger, LafargeHolcim would have more than 50 percent of the market, including Romania.

The Romanian cement market, which is estimated at around EUR 600-700 million (7 million tonnes), is already a concentrated one. Each of the local subsidiaries of the two companies covers about one third of the market. Carpatcement, part of German HeidelbergCement AG, the next biggest competitor of the future LafargeHolcim, has a similar market share of about 30 percent. The merger of the local subsidiaries of Lafarge and Holcim would further hamper competition on a market which is already closely monitored because of this issue, said the head of Romania’s Competition Council, Bogdan Chiritoiu, last week, according to local media reports.

Moreover, last year proved a challenging one for the local cement market which was estimated to have dropped by between 3 and 5 percent as both residential and non-residential construction stalled, said Daniel Bach, then CEO of Holcim Romania, in November.

Holcim and Lafarge operate two cement factories each in Romania – Holcim in Campulung and Alesd and Lafarge in Medgidia and Hoghiz. In addition to the cement business, the two companies also have divisions for aggregates, concrete and additional services. Holcim further supplies road binders, limestone filler and limestone.

The two firms reported a combined local turnover of over EUR 440 million in 2012, according to data from the Ministry of Finance. Lafarge Romania’s sales amounted to EUR 229 million while Holcim Romania reported EUR 213 million in sales.

The global merger between the two companies is meant to reduce costs, improve access to markets and enable the resulting LafargeHolcim giant to better cope with increasing energy prices. The move will require the approval of Holcim’s shareholders as well as that of the European Commission and competition authorities in the countries where both players are present. It should be completed in the first half of next year. At global level Holcim and Lafarage have total sales of EUR 32 billion and a EUR 6.5 billion EBITDA. The combined group will be present in 90 countries around the world with a “balanced exposure to both developed and high-growth markets”, according to a joint press release.