Building materials giants Lafarge of France and Holcim of Switzerland have announced merger plans that include the sale of the UK company Lafarge Tarmac of which Lafarge owns 50%.
This suits the other joint venture partner, Anglo American, down to the ground because it has long been looking to get out of building materials. To ease the way for a sale of Lafarge Tarmac, Anglo American said that it would sell its half share to Lafarge for £885m (US $1.5bn) in cash. Allowing room for negotiation, and Lafarge/Holcim being more flexible, that puts an approximate price tag of at least £1.6bn on Lafarge Tarmac. The vendors will likely seek a premium on top of this, since a single buyer would have total control of the business, which might be considered more than twice as valuable as a 50% stake. With a control premium, the price could be more like £2bn.
Lafarge and Holcim announced that they were in merger talks in April.
The sale of Lafarge Tarmac is one of a number of remedies that they have now set out in a bid to satisfy competition authorities.
Approximately 20% of the €32bn revenues of the future LafargeHolcim group will be in Europe. To satisfying the European Commission regulators, they are planning to sell:
- the UK: Lafarge Tarmac assets with the possible exception of one cement plant
- Austria: Lafarge’s Mannersdorf cement plant
- France: Holcim’s assets in metropolitan France, except for its Altkirch cement plant and aggregates and readymix sites in the Haut-Rhin market; Lafarge’s assets on Reunion island, except for its shareholding in Ciments de Bourbon
- Germany: Lafarge’s assets
- Hungary: Holcim’s operating assets
- Romania: Lafarge’s assets
- Serbia: Holcim’s assets
In other countries the planned disposals are:
- Canada: Holcim’s assets
- Mauritius: Holcim’s assets
- The Philippines and Brazil: divestment details to be announced.
Lafarge Tarmac in the UK was created in January 2013. It has 330 sites across the country and 6,600 employees. It provides aggregates, asphalt, cement, readymix concrete, lime and powders and contracting services. It has gross assets of £2.86bn, including goodwill and made a pre-tax loss of £66m in its first year.
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Comment: Potential buyers?
UK competition regulators required certain assets to be sold as a condition for the creation of Lafarge Tarmac. This created an opportunity for Indian steel magnate Lakshmi Mittal to enter the cement and concrete business. For £285m, he bought five quarries, a cement plant and 172 readymix concrete plants, among other things, and created Hope Construction Materials. His son-in-law, Amit Bhatia, is chairman of Hope.
While Mr Mittal undoubtedly has the finance and ambition required to acquire Lafarge Tarmac should he wish, it would mean a whole new reorganisation of the entire UK industry.
Breedon Aggregates, created in 2010 by Peter Tom and Simon Vivian, former bosses of Aggregate Industries and Hanson respectively, is also acquisitive and ambitious. While its leadership has the experience to front a deal for Lafarge Tarmac, the £1.5bn price tag is way beyond anything Breedon has countenanced before.
Another prospect is an institutional investor stepping in, rather than a strategic one, with the prospect of further upheaval five years down the line.
Whatever happens, as Sam Cooke sang in another context, a change is gonna come.
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