Holcim and Lafarge in advanced merger talks

Holcim of Switzerland and Lafarge of France, both peers of CRH, are in advanced merger talks to create the world's biggest cement company with sales of $40 billion and the potential for savings to absorb higher energy costs and production overcapacities.

“The discussions are based on principles consistent with a merger of equals which build on the strengths and identities of the two companies,” Holcim said in a statement yesterday. The company said no agreement had been reached and the talks could still fall apart.

Lafarge rose 8.9 per cent in Paris trading while Holcim gained 6.9 per cent in Zurich. The deal would allow the cement producers to cut costs by combining their production operations as some of the industry's kilns are running at a loss after the recent global recession eroded demand for building materials. To improve returns from energy-gobbling plants, Holcim in August already agreed to swap assets in Germany and the Czech Republic with Cemex, the biggest cement maker in the Americas.

Holcim and Lafarge entered the global financial crisis saddled with debt following major acquisitions. Lafarge bought Orascom Cement for €10.2 billion in 2008 while Holcim paid $4.1 billion for Aggregate Industries in 2005. The acquisitions widened the firms’ global scope with Holcim employing 71,000 people in about 70 countries while Lafarge has 65,000 workers in 64 markets. Lafarge estimates in its annual report that it has a cement market share of 34 per cent in France, 40 per cent in the UK and 10 per cent in Germany and Spain.

A deal may face opposition from antitrust regulators. Following Holcim’s asset swap deal with Cemex, the EU started an in-depth probe after regulators said the deal may substantially reduce competition.

Drawing on his past experience of overhauling steelmaker Aperam, Holcim chief executive Bernard Fontana has embarked on a similar cost-cutting programme. – (Bloomberg)