CRH to acquire Lafarge, Holcim assets

OREANDA-NEWS. February 03, 2015. Irish cement maker CRH will buy the assets that France-based Lafarge and Swiss-based Holcim are divesting as part of their merger, making it the third largest building materials producer in the world.

The €6.5bn (\\$7.4bn) purchase will double CRH's cement production volume from 19mn t to 42mn t, placing the company just behind LafargeHolcim and French multinational Saint-Gobain in rankings — up from its previous position as the fifth largest.

The assets are n four regions: eastern and central Europe, North America, western Europe and emerging markets (Brazil and the Philippines). The package includes 24 cement plants with a total of 36mn t of cement capacity.

The acquisition provides CRH with an entry point into new emerging markets, and it will allow the company to further its expansion in Asia-Pacific markets beyond China and India, which it entered in 2007 and 2008, respectively. In some markets, like the Philippines, CRH will look for a partner, as local rules prohibit foreign ownership. But the acquisition will make the new joint venture it forms in the Philippines the country's second largest cement maker, with 5.2mn t capacity.

Post-integration CRH will rank in the top five building companies in southeast Brazil — the country's most dynamic region for construction and close to Rio de Janeiro.

CRH had previously been cautious to enter developing markets, which it has viewed as risky. "We will over time reposition ourselves, as all construction businesses will do, with a larger emerging markets profile. But I think it has to be done in a measured way and a controlled way, so I do not foresee any mad rush to emerging markets for CRH," then-chief executive-designate Albert Manifold said in a call with investors in August 2013.

The move will allow CRH to enter more established markets as well, such as Germany. On top of that, the assets change the makeup of the companies' business, with 46pc of CRH's assets located in North America, down from 58pc. But the share of its business in emerging markets will double to 10pc. Western Europe will represent 36pc of the business, compared with 31pc before the acquisition.

But the new makeup of the business may not be permanent. Because of the geographically diverse nature of its portfolio, CRH is likely to sell some of the assets to a third party.

CRH was able to beat several private-equity-led consortiums by offering a higher amount for the assets, knowing that it would be able to integrate those plants into its existing business. The company will take advantage of its pre-existing presence in some of markets — such as the US — to roll out vertical integration models to deliver cost savings. CRH plans on realizing €90mn in synergies in the third year after the acquisition, with €30mn in its first year.

Some of those cost reductions will happen at the procurement level, with €25mn saved just on cement. The company previously had to buy 3mn t of cement in some of these regions, but it will now be able to save €5-10/t on these transactions.

CRH will finance the acquisition with existing cash, debt and 9.99pc equity placing. The Irish company cited the "all-time low cost of funds" as one of the reasons driving the acquisition. In comparison with its competitors, it made few acquisitions in recent years and sold its stake in its Turkish assets at the end of last year.

"With this announcement, we remain firmly on track to complete the proposed merger in the first half of 2015", the Lafarge and Holcim chief executives said. But the companies are still waiting for regulatory approval in certain countries, including the US and India.

The acquisition will have to be approved by CRH's extraordinary general meeting in March.