Monday 22 January 2018

CRH likely to examine options after Holcim and Lafarge merger

Albert Manifold CEO, CRH Plc
Albert Manifold CEO, CRH Plc
John Mulligan

John Mulligan

Irish building materials giant CRH is likely to run the numbers on a possible merger following the confirmation that Lafarge and Holcim are to combine to form the world's biggest cement maker, according to a senior analyst.

Switzerland-based Holcim and Paris-based Lafarge have announced their intention to merge to create a company that would have annual revenues of around €32bn and earnings before interest, tax, depreciation and amortisation (EBITDA) of €6.5bn. Lafarge CEO Bruno Lafont will lead the new company.

But in order to clear what will be global regulatory hurdles, the two companies plan to divest assets worth between 10pc and 15pc of the annual EBITDA of the combined entity. About two-thirds of the asset sales will be made in Europe.

The all-share deal will see the new company, LafargeHolcim, pursue €1.4bn in incremental synergies.

David Holohan, the head of research at Merrion Capital, told the Irish Independent that the merger was likely to put some pressure on CRH to look at its own possible options. He said that CRH was almost certain to see if a deal with a rival such as Germany's HeidelbergCement could make sense.

CRH generated revenue last year of €18bn and EBITDA of €1.47bn. HeidelbergCement's revenue last year was €13.9bn and its EBITDA was €2.42bn.

SALE

CRH chief executive Albert Manifold, below, said in February that the group had slated an initial 45 businesses that it's likely to put up for sale because they don't meet the company's criteria of being able to deliver improved margins and future growth.

But any sale of Holcim's and Lafarge's assets to clear regulatory obstacles won't impact CRH's disposal programme, as the assets are in different sectors.

The Holcim-Lafarge merger is also likely to create opportunities for CRH.

Analyst Tom Holmes of Investec in Dublin said that CRH had between €1.5bn and €2bn in financial firepower at its disposal to make acquisitions.

As CRH progresses its own portfolio review, he said the merger would give the Irish group an opportunity to replace some underperforming assets with stronger ones.

"I guess the key question is whether CRH is willing to go into a brand new market," Mr Holmes said.

Irish Independent

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