Lorries queue at the cement dispensing outlet at the CRH quarry in west Dublin. Lafarge and Holcim said the assets to be sold to CRH mainly comprised operations in Europe, Canada, Brazil and the Philippines, and generated about €5.2bn in revenue and €744mn in earnings last year.
Bloomberg/Dublin
CRH Plc agreed to buy €6.5bn ($7.3bn) of cement assets from Holcim Ltd and Lafarge SA as the Irish company saw its rivals’ need to divest businesses to meet merger demands as an opportunity to grab market share.
The assets to be sold to CRH, mainly comprised of operations in Europe, Canada, Brazil and the Philippines, generated about €5.2bn in revenue and €744mn in earnings last year, Lafarge and Holcim said in a joint statement yesterday.
The deal dwarfs any of CRH’s acquisitions thus far. The Dublin-based building-materials supplier fine-tuned a strategy of making bolt-on acquisitions to grow at a steady pace, refraining from the flurry of mega debt-fuelled deals in the mid-2000s that Holcim, Lafarge, Cemex SAB engaged in to spur rapid growth globally. CRH stock rose the most in a year.
“It’s really a great fit for us,” chief executive officer Albert Manifold said on a call. “Not all of these assets are going to remain long term in our group.”
By holding its nerve and not joining the spending bonanza that preceded the financial crisis, CRH has been able to step in and buy assets when valuations aren’t as overheated as they were then, the CEO said. It will be required to take a minority partner in the Philippines, and is talks with KKR & Co regarding some UK assets.
CRH shares gained €1.17, or 5.5%, to €22.49 as of 8:26am, their biggest intraday advance since February 25. Holcim added 2.4%, and Lafarge was up 1.1%.
The purchase is expected to boost adjusted earnings per share by about 25%, with a return on equity in the high-teen percentages in 2016, CRH said. It’s paying €2bn in cash and planning a 9.99% share placing to institutional investors. The stake sale will be organized and managed by UBS, JP Morgan Securities, Merrill Lynch International and J&E Davy.
The Irish company is looking to get €90mn in savings in the third year of ownership. It expects net debt to reach 3.2 times Ebitda “in the short term.”
“We really are buying these businesses at the right time,” Manifold said. “Buying these businesses at this point of the cycle, with trough margins, trough earnings and very low cost financing, puts us in a very good position to create value.”
For Holcim and Lafarge, the sale removes the final major hurdle in the way of the two companies’ plan to combine cement- and crushed-rock operations with $40bn in annual revenue. The companies expect the merger, agreed in April last year, to be completed in the first half, once Holcim shareholders approve the deal at a meeting and Lafarge investors tender their shares.
They represent “the vast majority of the divestments” needed for antitrust approval, Holcim chief executive officer Bernard Fontana said on a conference call today. Holcim and Lafarge are still waiting for regulatory clearances in the US, Canada, India, Mauritius and Ecuador, and can get approval post-merger in Indonesia, he said. The plan to merge Jona, Switzerland-based Holcim and Paris- based Lafarge to create the world’s biggest cement maker was approved last year by the European Union and subject to the sale of overlapping operations in more than half a dozen countries.
CRH, which can cut costs from overlapping businesses, competed against bidders including a group formed by Cinven and Blackstone Group, people familiar with the matter have said.
Holcim and Lafarge were advised by Credit Suisse Group AG and HSBC Holdings Plc as well as BNP Paribas and Morgan Stanley. CRH worked with UBS, Bank of America Merrill Lynch, JPMorgan Chase & Co, and Davy and Goodbody.
