Local impact of foreign merger:Edelweiss

Apr 14 2014, 11:54 IST
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SummaryThree possible scenarios arise here from merger of Lafarge and Holcim

of ACC, Ambuja and LIPL citing creation of dominant position in eastern region, they may be forced to sell some of its assets. There’s high probability of LIPL’s assets being sold, as similar sale by ACC or Ambuja may be objected by minority shareholders. Asset sale to external players will not lead to industry consolidation, and hence we view this scenario as ‘Neutral’ for industry.

* Acquisition of LIPL by ACC or Ambuja is approved by CCI

The third possible scenario, in our view, is acquisition of LIPL by ACC or Ambuja. Of the two, there is higher probability of ACC acquiring LIPL as it has ~R25 bn of cash on its books. Ambuja’s cash of ~R35 bn will go to parent company Holcim as part the recent corporate restructuring deal. This acquisition will also require CCI approval. If approved the acquisition will lead to further consolidation in industry (mainly Eastern region) and hence positive for industry.

The deal valuation will determine attracti- veness for the acquirer. We await further clarity from respective managements regarding execution of the merger in India.

Takeaways from analyst

webcast

* Merger of Lafarge and Holcim will create a world leader in building materials industry headquartered in Europe.

* A total of EUR1.4 bn of synergy benefits will be generated p.a. after three years. Of this, EUR1 bn will accrue from operational savings (operational optimisation, adopting best practices, procurements and in SG&A expenses) and the balance will comprise financing and capex related savings. Besides, working capital requirement is also estimated to reduce by EUR410m over time.

* The deal will be completed by H1 2015 with the merged entity to be listed on two existing stock exchanges–SIX of Zurich and Euronext of Paris.

* The companies are looking at asset sale to meet regulatory requirements of different geographies. Such sale is envisaged to impact revenues by EUR5 bn and Ebitda by EUR0.8 bn (on CY13 basis).

* Existing CEO of Lafarge, Mr. Bruno Lafont will become CEO of LafargeHolcim, while Wolfgang Reitzle of Holcim will be the chairman of the merged entity.

* To diversify risks, no single country will represent >10% of the merged entity’s revenue. In our view, the combined revenues for CY13 of all three entities in India were slightly less than 10%; hence there’s no risk of asset sale from this perspective.

* Merged entity will have strict discipline on capex, focus on RoCE (return on capital employed) and a

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