Cement firms strike merger deal

Cement makers Lafarge and Holcim have announced plans to merge in a deal creating a business with combined sales of around £26 billion.

Lafarge has announced plans for a 'merger of equals' with Holcim of Switzerland.
Lafarge has announced plans for a 'merger of equals' with Holcim of Switzerland.

LafargeHolcim is set to be the world's leading player in cement, concrete and aggregates once the tie-up is completed in the first half of next year.

France's Lafarge, which entered the UK market in 1987 before acquiring Redland in 1997 and Blue Circle in 2001, recently merged its UK operations with those of Anglo American to create LafargeTarmac, a business employing 5,500 staff at 300 sites. Holcim owns Aggregate Industries in the UK.

With the deal set to receive close scrutiny from regulators, the companies plan to offload assets generating between 10% and 15% of their global earnings. No country will account for more than 10% of combined revenues.

The tie-up has been presented as a merger of equals, with the new board featuring equal numbers of Lafarge and Holcim directors.

France's Lafarge employs 64,000 people and generated sales of 15.2 billion euros (£12.6 billion) in 2013, while Zurich-based Holcim achieved sales of 19.7 billion Swiss francs (£13.3 billion).

A two-year investigation by the Competition Commission recently found that the way the UK cement market is set up aids coordination between its three major players, including LafargeTarmac.

The company was told to sell a plant in Derbyshire or Staffordshire and offload accompanying ready-mix concrete plants in order to facilitate the creation of the new producer in the UK.

Cantor Fitzgerald analyst Ian Osburn said anti-trust issues were likely to require divestments worth up to 4 billion euros (£3.3 billion) in several global markets, including UK aggregates. Potential industrial buyers are likely to include the Dublin-based building materials firm CRH.

Christian Stadler, an associate professor at Warwick Business School, has researched Lafarge as part of a 10-year study into long living companies.

Dr Stadler said there were many examples of mega-mergers destroying value rather than enhancing it.

He added: " A prime example comes from the car industry when Daimler and Chrysler merged, both companies lost billions of pounds before they agreed to part again.

"When BP merged with Amoco in 1998 they had many problems in terms of increased complexity and duplications, it certainly affected BP's performance for a long time.

"Lafarge merging with Holcim makes a lot of sense in terms of increasing scale, because cost is a big problem in that industry. It will also increase global reach, but neither have done a mega merger before and the challenges can be tremendous when it comes to implementation.

"It is the processes, the small details that you can't put on paper, and the clash of cultures."