Mauritius cement market will witness significant changes next year, as Holcim, one of the two largest cement operators in the island economy, is withdrawing from the market, following a proposed merger between Holcim and Lafarge.
Lafarge and Holcim are the largest cement and construction product makers in Canada, and the merger, plans for which were unveiled on April 7 and which is expected to be finalized by early 2015, is expected to result in the world’s largest cement maker.
Besides Mauritius, others countries where these conglomerates are actively operating, are also likely to feel significant repercussions.
The companies have already told the international press that they would seek buyers for operations in Mauritius,Austria, Hungary, Romania, Serbia, Britain, Canada, the Philippines and Brazil.
Mauritius cement firm Ciments de l’Océan Indien Limitée is majorly held by Holcim with 51% stake, and the remaining 49% is held by local conglomerate Gamma.
At this point, very little information on future developments is coming through, as the entire issue is being played out on the world stage and Holcim Mauritius does not have much say in the matter.
Globally, the merger is expected to translate into a series of sell-offs that is likely to affect some 10,000 workers out of their global total of 130,000 and account for around 3.5 billion euros of sales.
The two companies need to shed assets generating about 5 billion euros (MUR 207 billion) in annual revenue to help persuade competition watchdogs to back the proposed deal, which would create a combined group with 32 billion euros (MUR 1.3 trillion) in yearly sales.
Competition regulators in some 15 countries, as well as the European Commission, are expected to take a hard look at the deal, which brings together the world’s top two cement makers with a combined stock market value of more than 41 billion euros (MUR 1.7 trillion).
Holcim CEO Bernard Fontana said the companies had already received about 50 expressions of interest from potential buyers and would soon begin negotiations.
He said the assets had been selected based on their geographical and industrial overlap and how swiftly they could be sold at a good price.
“This list represents most of the assets that both companies consider divesting as part of the planned merger. Other divestments will be unveiled in due time,” Fontana told reporters on a conference call.
Imports of cement total MUR1.8 billion in the Mauritian market with 60% allocated to Lafarge and 40% to Holcim, despite the storage capacity of the latter being almost twice that of the first.
The real question is the identity of the new partner acquiring Holcim’s share and what conditions would be pursuant to the deal.
Given the strategic nature of this market, with imports of about 650,000 to 700,000 tonnes annually, the Competition Commission of Mauritius (CCM) needs to decide the conditions surrounding a choice corporate candidate to replace Holcim and avoid collusion.
Incidentally, a survey conducted by the CCM in November 2012 concluded that the cement market was still concentrated between the two operators, Holcim and Lafarge.
However, since the two distributors had the ability to provide the entire domestic market, the survey did not have any tangible recommendations to make, beyond the fact that newcomers would need to ‘successfully capture a significant market share from the existing operators.’
Moreover, it was on the strength of the entry of two players into the Mauritian cement market, removing it from the threat of an imminent monopoly, that the State Trading Corporation (STC) had stopped supplying cement in the market since July 2011.
However, it looks in the light of current conditions that STC withdrew from the cement market much too soon.
Finally, both Lafarge and Holcim have repeatedly said their merger, which would create a group with global headquarters in Zurich, would not entail any plant closures or industrial job cuts.
Image (Bloomberg): Cement majors Holcim and Lafarge have already told the international press that they would seek buyers for operations in Mauritius, Austria, Hungary, Romania, Serbia, Britain, Canada, the Philippines and Brazil.
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