Cement Deal-Making Wave Is Over, HeidelbergCement Chief Says

Industry:    March, 2016

A wave of consolidation among European cement makers is over, according to HeidelbergCement AG Chief Executive Officer Bernd Scheifele. “There won’t be any big movements,” he said at a press conference in Heidelberg, Germany. Large-scale combinations “have now happened.” HeidelbergCement and bigger competitor LafargeHolcim Ltd. detailed their first full-year earnings Thursday after announcing multi-billion euro deals in 2015 that reduced competition on global cement markets. Lafarge SA of France and Switzerland’s Holcim Ltd. completed a merger in July to create the world’s biggest producer of the building material, a move that was followed by no. 2 HeidelbergCement’s still-to-be-closed deal to buy Italcementi SpA for 3.7 billion euros ($4.2 billion). The consolidation came as cement makers around the world grapple with slowdowns in China, Brazil and Russia as well as pressure on prices of building materials in some markets like Nigeria and India. Both European producers expect overall demand by volume to rise this year while they wring savings out of operations in a bid to boost profitability. Smaller Master “It’s better to be master of your own house, even if that house is somewhat smaller,” than proceed with a bigger tie up, Scheifele said Thursday of HeidelbergCement, which has a market capitalization of 14 billion euros compared with LafargeHolcim’s 25 billion euros. Smaller tie ups could happen within markets that are struggling, he said. “There are markets like South America that are massively under pressure, where the big Brazilian players might find themselves under pressure, but that’s just speculation,” he said. “What we don’t see is the Chinese coming and making acquisitions in the sector. They are busy consolidating their own market.” This has already started to happen in India, where UltraTech Cement Ltd. announced in February the planned purchase of cement units belonging to Jaiprakash Associates Ltd. and Birla Corp. Ltd. agreed to acquire the cement business of Reliance Infrastructure Ltd. LafargeHolcim is selling 3.5 billion ($3.6 billion) Swiss francs of assets including in India while working to meet a pledge for savings of more than $1 billion through 2017. Investors have sent shares down 42 percent since the combined company began trading in July. This compares to a 0.3 percent drop for HeidelbergCement. “The most challenging dimensions of the merger are now behind us,” LafargeHolcim CEO Eric Olsen said in Zurich. “We can save costs in some challenging markets where the merger allows us to go further and deeper.”