T
he proposedmerger betweenHolcim andLafarge is staggering for
any number of reasons. The size of the deal and the size of the
company that would result – which may push other players in
themarket to seek similarmarriages – are the obvious ones, but forme
the competition concerns are huge. I expect objections to this deal from
regulators will be significant.
LafargeHolcimwouldhave a production capacity of some 427million
tonnes of cement per year, whichwouldbe about three times the size of
its nearest rivals – groups likeCemex andHeidelbergCement – and this
would equate to about a12% shareof global annual cement production,
which was 3.6 billion tonnes in 2012 according to trade association
Cembureau.
While a 12% global share doesn’t sound like something to get too
uptight about, bear in mind the company will be present in less than
half the countries in the world. A lot of their combined footprint will
be focussed in key developedmarkets inEurope andNorthAmerica, so
concerns about an over-dominant producer harming competition start
to lookwell-founded.
To be fair to Holcim and Lafarge, they have recognised that
competition concerns will be an issue, and have said from the outset
they expect todivest businesses to get regulatory clearance. Assetsworth
maybe as much as US$ 4 billion might have to be sold, and this in
itself is an interesting one to chew on. Would they be spun-off in an
IPO or sold? – either to a developed world competitor (probably not,
again because of anti-trust concerns), an emergingmarket upstart (like
Mittal’s acquisition of Arcelor in the steel industry in 2006) or a private
equity buyer.
But for Holcim and Lafarge to try to be proactive about divestments
to get this merger approved seems to be missing the point. Regulators
around the world have long voiced their concerns about a lack of
competition in the materials and aggregates industries, and both
Holcim and Lafarge have faced fines in in courts around the world for
their parts in cartels.
The cartel problem may be historic, but there are still competition
concerns. In the UK, the Competition Commission wants to force
divestments among the big producers to create another player in the
cement and aggregates sector.
Meanwhile, just a few days after the Lafarge-Holcim merger was
announced, Brazil’s anti-trust regulator, Conselho Administrativo de
Defesa Econômica (CADE) said it would force the sale of 24% of the
country’s installed cement capacity and fine four manufacturers – one
of themHolcim - a total of US$ 1.4 billion. Lafarge is also involved in
the Brazilianmarket, but had already agreed a settlement withCADE.
So while the respective boards and shareholders may approve of the
merger, I expect they’re in for a rough ride withmany of the regulators
in the 90or so countrieswhere one or bothofHolcim andLafarge have
production facilities.
With the amount of negotiation that will be needed with all the
competition authorities in those jurisdictions, the timetable for closing
the deal in 15months or so also sounds optimistic.
Chris Sleight
Editor
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COMMENT
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may 2014
international
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