Holcim-Lafarge merger dispute puts CRH’s goals at risk

A widening rift between European cement makers Holcim and Lafarge may claim a victim in CRH, an Irish building-materials supplier that’s tied its global ambition to the completion of their $40 billion merger, reports Bloomberg.

Dublin-based CRH last month agreed to spend 6.5 billion euros ($6.9 billion) on assets that Holcim and Lafarge needed to sell for antitrust approval, in an effort to expand in countries including Brazil, Canada and the Philippines. CRH’s biggest-ever deal would boost its sales by about 28 percent, prompting Chief Executive Officer Albert Manifold to call the transaction “a key part of the growth and future strategy.”

“It’s a hugely transformational deal, and one that we are fans of should it go ahead,” Christen Hjorth, an analyst at Numis Securities, said in a phone interview, referring to CRH. “If it doesn’t go ahead, there is no other opportunity to do something similar.”

CRH shares, which surged 7.7 on Feb. 2 when the deal was announced, dropped 4.7 percent yesterday after Switzerland’s Holcim said it won’t pursue the planned combination with France’s Lafarge in its present form. CRH’s agreement to buy assets from the merged company is tied to successful completion of the deal.

Holcim wants the French partner to accept management changes and a stake in the combined business that’s lower than the initially agreed 47 percent. Representatives for Holcim and Lafarge met yesterday and while there was progress on reaching a compromise, outstanding disagreements remain, said a person familiar with the matter.

Out of Control
The uncertainty leaves CRH, which already raised 1.6 billion euros through a share placing to institutional investors to help fund the deal, in limbo because its investors are scheduled to meet on March 19 to approve the transaction.

“I feel for CRH’s management, because they’ve done all the right things, it’s something that’s completely out of their control,” said Numis Securities’ Hjorth.

A CRH representative said the company still plans to hold the shareholder meeting, declining to comment further.

The Holcim-Lafarge agreement represents a break from CRH’s previous strategy that consisted of making smaller 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.

CEO Manifold told investors that the deal was worth the strategy change, as it would boost adjusted earnings per share by about 25 percent and hand the company profitable assets at a good price.

Because of the deal’s benefits, Robert Eason, an analyst with Goodbody in Dublin, predicts CRH’s shareholders will approve the deal in case Holcim and Lafarge manage to rescue the transaction.

“It is a unique opportunity getting such a collection of assets at one time,” he said in an interview. “It’s almost three to four years of acquisition activity in one go.”


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