Lafarge, Holcim Canada disposals affected by new rival plant

Efforts by Lafarge and Holcim to sell assets as part of their planned merger may be complicated by a new cement factory in Canada that is pumping more capacity into an already saturated market, further depressing prices, reports Bloomberg.

McInnis Cement Inc.’s plant in the northeastern Quebec region of Gaspesie will be able to produce 2.2 million tons of cement annually and may start shipping to clients in two years, Jim Braselton, a senior vice president at the Canadian company, said in an interview. That represents about two-thirds of the local cement capacity which Lafarge and Holcim are selling.

“A new plant won’t help the divestiture process and will likely impact the assets’ sales price,” said Cantor Fitzgerald Europe analyst Ian Osburn. The assets for sale, including construction and aggregates units, may be worth roughly 700 million to 1 billion Canadian dollars ($884 million), excluding the impact of increased supply by the McInnis plant, he said.

Lafarge and Holcim need to dispose of operations worth as much as 7 billion euros ($8.8 billion) worldwide, people familiar with the matter have said, as the two companies seek regulatory approval to complete their $40 billion merger next year. Lafarge and two environmental groups this year asked a judge at the Quebec Superior Court to revoke the building permit for the McInnis plant in Canada, saying that the project was approved without a proper review and also gives the rival an unfair advantage because it’s part-funded by the government.

Braselton said the competitors are concerned that the new plant will lower the value of their own plants in Eastern Canada that date back to the 1950s, 60s and 70s.

“If you have a new entrant with an environmentally friendly plant, that will set a new standard, that’s well positioned — what’s a buyer going to think about the price to be paid?” he said. “I can’t think of any other reason why they are coming after us with such fervor.”

Lafarge spokeswoman Christel des Royeries said by e-mail that the company “has opposed public funding for the McInnis cement project since 2013 when the issue of governmental subsidies first emerged,” adding that “our opposition to the project began long before any announcement related to our merger project.” Markus Jaggi, a spokesman for Jona-based Holcim, declined to comment on “competitors’ actions or remarks.”

No final decision has been made in the legal challenge against the plant. Braselton said the case will probably stretch into next year at least.

McInnis’s plant is backed by the Beaudoin family, which is also a major shareholder in Canadian plane and train maker Bombardier. The site, which will begin delivering cement within Canada and to the US in two years, will be part-powered by hydroelectricity and conform with the most restrictive air emission standards in North America, Braselton said.

The $1 billion McInnis cement plant funding is equally split between debt and equity. The Beaudoin family is the main investor, while the government of Quebec, through its Investissement Quebec agency, has a minority equity stake, as does pension fund Caisse de Depot et Placement du Quebec. The plant is being built in the Port-Daniel-Gascons municipality of Quebec, where unemployment is about double the provincial average.

US trade officials said last month that they were concerned that Canada’s alleged plans to subsidize the building of the McInnis plant could affect US cement producers.

While the new plant could reduce the proceeds of assets sales by Holcim and Lafarge in Canada, the project is unlikely to have an impact on the companies’ merger plans, according to analyst Osburn.

“Lafarge and Holcim can just drop the sales price and the rationale for the merger as argued by the companies should still hold.”


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