The largest cement manufacturer is to be formed by Holcim Ltd and Lafarge SA in the largest European deal in 2014. The merger is considered as beneficial to both companies, because it may provide them with the opportunity to combine some operations amid weak demand for building materials as a result of global recession.
The companies made a joint statement, revealing they are preparing to sell assets with 5 billion euros (6.9 billion dollars) in revenue in order to get approval by the European regulators. Groups combined sales would be 39 billion euros, while its earnings before interest, taxes, depreciation and amortization (EBITDA) – 6.5 billion euros. The deal is structured as an all-share merger and is expected to lead to sinergies of over 1.4 billion euros. The merger was signed off by the boards of both companies during the weekend. Both entities have amassed a huge debt and have been forced to implement considerable cost-reducing programmes.
One of the analysts working for Aurel-BGC – Mr. Eric Lemarie, said: “The task will be vast. But divestments and swaps are frequent in this industry.”
The new entity will be put under the lead of the current Chief Executive Officer of Lafarge – Mr. Bruno Lafont. As reported by the Wall Street Journal, Mr. Lafont said: “We will start discussions immediately with the European Commission and other regulators elsewhere. Nobody is buying or selling. This is two groups of shareholders who are becoming the owners of a much larger group.” The companies have also explained that the deal is to be finalized as early as the first half of 2015 in order to provide themselves with enough time to specify the details of the merger.
Both Holcim Ltd and Lafarge SA expect it to get a market value of about 50 billion dollars. However, the executive officers of the two companies refused to reveal which parts of the entity after the merger would be on the block.
Glynis Johnson and Many Rimpela, analysts working at Deutsche Bank, said they expect that competitors may consider buying some of the assets. They also commented for Bloomberg: “Forced disposals may offer opportunities for others to pick up assets at perhaps opportunistic prices.”
According to the Financial Times, shares of Holcim Ltd gained 1.12%, while companys one-year return rate was 13.75%. The 25 analysts offering 12-month price targets for Holcim Ltd have a median target of 74.00, with a high estimate of 88.00 and a low estimate of 60.60. The median estimate represents a -7.73% drop from the last price of 80.20.
Shares of Lafarge SA rose 1.65%, while companys one-year return rate was 35.37%. The 24 analysts offering 12-month price targets for Lafarge SA have a median target of 60.00, with a high estimate of 70.00 and a low estimate of 40.00. The median estimate represents a -6.38% drop from the last price of 64.09.