World’s two largest cement manufacturers in merger talks

The worlds’ two largest cement makers, Lafarge and Holcim , said they are in merger talks, flagging what could be Europe’s biggest tie-up of the year to date creating a company with a stock market value of over $50 billion (30 billion pounds).

The discussions are “based on principles consistent with a merger of equals”, Paris-listed Lafarge said in a statement on Friday.

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The company said no agreement had yet been reached with Switzerland’s Holcim and that there was no guarantee of a deal, but said there was a “strong complementarity” and “cultural proximity” between the two.

Groupe Bruxelles Lambert, Lafarge’s main shareholder, had no immediate comment.

Shares in Lafarge hit a high of more than four years and were up 8.3 percent at 1515 GMT, the top gainers on the French blue-chip CAC 40 index, after an earlier Bloomberg report of the discussions. Holcim stock was 8.5 percent higher.

“It’s good for the market. Things are boiling up on the M&A front, not only in the telecoms sector but also in the construction sector,” said Clairinvest fund manager Ion-Marc Valahu. “There’s overcapacity and they need to consolidate their balance sheets.”

A merger would allow Lafarge and Holcim to slash costs and reduce worldwide overcapacity that has weighed on the market in recent years. Both companies are also striving to trim debt resulting from major acquisitions.

Lafarge bought Egypt’s Orascom Cement for 8.8 billion euros ($12 billion) in 2008, while Holcim paid about $3.4 billion for Aggregate Industries in 2005.

Lafarge’s debt pile has led to “junk” ratings from credit rating agencies Standard & Poor’s and Moody’s. The company has been slashing costs and selling non-core assets to trim debt, and aims to regain an investment grade by the end of this year. Source: Reuters