CRH buys Holcim-Lafarge assets

CRH has entered a binding agreement to buy assets that cement makers Holcim and Lafarge need to sell ahead of their planned merger.

The deal will allow the Dublin-based building materials group, which is partnering with KKR & Co, to move into new markets and expand its presence in existing ones.

The builder, which was formed in 1970 through the merger of two Irish companies, already operates in 35 countries with about 76,000 people and has about €18bn in annual sales.

The transaction has an enterprise value of €6.5bn and will be funded by a combination of cash on balance sheet, new debt and a 9.99% equity placing, CRH said yesterday.

Holcim and Lafarge needed to divest businesses with revenue of about €5bn to ensure regulatory approval for their merger which will combine cement and crushed-rock operations with €35bn in annual revenue.

The companies expect the merger, agreed lastApril, to be completed in the first half of this year.

CRH, which has the advantage that it can cut costs from overlapping businesses, had been competing with other bidders including a group formed of private equity players, Cinven and Blackstone Group.

The plan to merge Jona, Switzerland-based Holcim, and Paris-based Lafarge to form the world’s biggest cement maker was approved last year by the EU subject to the sale of overlapping operations in more than half a dozen countries.

The EU said at the time that its decision was conditional upon the divestments of Lafarge businesses in Germany, Romania and the UK; and of Holcim units in France, Hungary, Slovakia, Spain, and the Czech Republic.

The merger may allow Holcim and Lafarge to cut costs by combining operations as some of the industry’s kilns run at a loss after the recent global recession eroded demand.

An acquisition spree before the financial crisis, including Lafarge’s €10.2bn purchase of Orascom Cement in 2008 and Holcim’s €3.6bn deal for Aggregate Industries in 2005, widened the dominance of both companies.

Irish analysts have welcomed CRH’s move; Davy Stockbrokers recently suggesting a successful deal could prove “game-changing” for CRH, with accretion to profitability likely to be “substantial”.

Goodbody Stockbrokers suggested it could be a catalyst for share price momentum and described a deal as “a unique opportunity” for CRH.

* Bloomberg