CRH waiting in wings to benefit from Lafarge-Holcim deal shake-out

News that rivals Lafarge and Holcim plan to mix up the world's cement industry by creating a $50 billion giant with operations in virtually every significant market sparked interest in Irish player CRH yesterday.

Shares in the Dublin-based group, which has close to €20 billion revenues and businesses throughout Europe, the US, China and India, surged by about 2 per cent early in the day while 2.2 million of its equities changed hands.

Investors believe CRH is waiting in the wings to benefit from the shake-up that is likely to follow the merger of the Swiss and French giants.

The pair know their plans threaten to create a headache for anti-trust watchdogs in Europe and the US. They anticipated this by pledging to sell off assets in markets where the overlap between the two is likely to damage competition.

The two say that the newly merged entity – to be called Lafargeholcim – will not derive more than 10 per cent of its revenues from operations in any single country. There are eight where they have more than half the market between them.

Sell-off
According to Robert Gardiner, industry analyst with Dublin stockbroking firm Davy, this leaves the two with no choice but to engage in a sell-off.

“It is going to be a very large divestment programme, there are around six billion Swiss francs ( €5 billion) in assets that they want to divest,” he said.

“There are 20 geographies where they overlap and 15 where they are going to run into competition problems.”

The bottom line for CRH is that a number of businesses likely to fit well with its group are likely to come on the market. In addition, its cash flows and balance sheet mean it is in a particularly strong position to purchase suitable assets.

Mr Gardiner points out that these are likely to be mainly in western Europe, the US and Canada, where the Irish group already has a strong presence.

He does not believe the Lafargeholcim plan will have huge impact on CRH’s own proposals, announced weeks ago, to sell off some of its businesses.

Mr Gardner said the operations that the Irish player intends selling are at the other end of the industry spectrum: finished product suppliers rather than producers of raw materials, cement and asphalt.

David Holohan, analyst with Merrion Stockbrokers, suggested that, given Lafarge and Holcim will have to deal with multiple regulators across multiple jurisdictions, their target of getting the merger through in the space of a year is ambitious.

“It is going to take several years to do this. And that does not mean that they will get all the disposals done in that time. It is going to have a minimal impact in the near term.”