Lafarge has agreed terms with Holcim, parent company of Aggregate Industries, over a merger that would create a £26bn-turnover firm but is set to see UK assets sold.
The firms said the proposed merger had been approved by their respective boards of directors and was supported by the core shareholders of both companies.
A deal could be completed by the end of H1 2015, subject to obtaining regulatory approvals.
The firms have a combined revenue of around £26.5bn.
Both Lafarge and Holcim will now start to prioritise the sale of assets, including those in the UK, to comply with competition regulation.
A source close to Lafarge told Construction News the groups will immediately start drawing up a list of UK assets to sell.
Both groups hold significant UK interests. Lafarge Tarmac is a 50:50 joint venture between Lafarge and Anglo American. It was established in March 2013 through the merger of Tarmac, owned by Anglo Amercian at the time, and Lafarge’s UK interests.
Holcim is one of the world’s leading cement producers and is the owner of Aggregate Industries.
A separate source said it was a move that did not come as a surprise and would be a good, worldwide fit.
“You have to put it in perspective when it comes to the UK, it’s a very small part of their business,” they said. “If they really want to do something worldwide, the UK is a pretty small factor.
“But there would be a serious problem in terms of aggregates in the UK – there would be a serious disposal issue there.”
The firms have confirmed they will sell up to 15 per cent of their joint assets, with around two-thirds of the asset sales to come in Europe.
On the impact to the UK market, both sources agreed that the firms’ UK sale of assets to comply with competition laws was likely to focus on its interests in asphalt, aggregates and concrete, rather than cement.
Both sources said any disposal of assets could be of interest to UK firms Hope Construction Materials and Breedon Aggregates, while Irish firm CRH could also be interested in snapping up assets.
Hope’s turnover in 2013 was almost £300m. It launched in January 2013 following the establishment of Lafarge Tarmac after the acquisition of 180 nationwide operational assets including concrete plants, quarries, depots and the UK’s biggest cement plant in Hope Valley, Derbyshire.
Breedon Aggregates confirmed last week it had expanded its operations at Clearwell quarry near Lydney in Gloucestershire with the acquisition from Aggregate Industries of the ready-mixed concrete plant on the site.
The firms said they expected to make annual synergies of:
- Around £1.2bn of ‘incremental synergies’, including £400m in the first year
- Around £800,000 at EBITDA level through “best practices, scale and cross-utilization of innovative products and solutions”
- £165m in financial savings
- £165m in capital expenditure savings
The sector has already come under close scrutiny from the UK Competition Commission in recent years. The commission demanded Lafarge and Tarmac’s owner Anglo American sell plants and quarries ahead of the Lafarge Tarmac merger.
In January, the commission confirmed that Lafarge Tarmac would also have to sell either its Cauldon or Tunstead cement plants plus accompanying ready-mix concrete plants if necessary to a new producer.
The CC also ruled it wanted to increase competition in the supply chain for ground granulated blast furnace slag (a partial substitute for and input into cement) by requiring Hanson to sell one of its GGBS production facilities.
The chairman of the new LafargeHolcim board would be Wolfgang Reitzle, future chairman of Holcim. Bruno Lafont, chairman and chief executive of Lafarge would become chief executive of the new group and a member of the board.
Lafarge and Holcim said they expected to make around £1.5bn of savings through the merger.
The companies said: “LafargeHolcim would be in the best position to contribute to addressing the challenges of urbanization: affordable housing, urban sprawl and transport.
“The new group would increase its offer to customers through innovation delivered on an expanded scale, best in class R&D and a combined portfolio of solutions and products.
“Both companies have pioneered sustainability and climate change mitigation in the industry and are committed to take it to the next level.
“LafargeHolcim would have an enhanced presence in the global building materials sector with a number one position globally across cement, concrete and aggregates and new opportunities to optimize production and commercial networks.”
Holcim had revenue of more than £13bn in 2013. In 2012, Lafarge recorded revenue of around £13bn.
In the 2013 financial year, Holcim had group cement sales of 138.9 million tonnes, compared to 142.3 tonnes in the previous year.
Aggregates volumes contracted in 2013 by 2.4 percent to 154.5 million tonnes
Deliveries of ready-mix concrete fell by 12.9 percent to 39.5 million cubic metres and asphalt sales rose in the UK.
Larfage chairman and chief executive Bruno Lafont said: “With a best in class international portfolio, robust balance sheet and strong governance, the new group will offer higher growth and low risk, thus creating more value.
“For years, I have had the utmost respect for Holcim. The merger of Lafarge and Holcim will allow the group with strong roots in Europe to enter into a new dimension in our ambition to contribute to building better cities on a global scale and in a sustainable manner.”