L
ast April Lafarge andHolcim announced their plans tomerge, and
I wrote at the time that gaining regulatory approval for the deal
would be a challenge. There are plenty of cases of anti-competitve
behaviour in the cement and aggregates industry’s history, and in some
countries the sector is being examined by regulators because of concerns
there is not enough competition.
Sure enough, last year saw the two companies announce a package of
divestments that regulatorshad insisteduponbefore allowing themerger.
Most of them were in Europe and North America – two of the more
mature and consolidated markets in the world, where competition is a
key concern.
At the time therewere a handful of scenarios. First was the question of
whether the businesses would be sold as a single lot or broken up into
smaller packages.The secondwas whowould the buyer(s) be? It seemed
to me that it would either be a private equity company, a developed
world industry incumbent or an ambitious and growth-minded player
from an emergingmarket.
Last month it turned out that the second scenario was the way things
would go, with CRH announcing it would buy all of the businesses
being divested forUS$ 7.3 billion in cash.
So where does this leave the question of adequate comptetion? In a
worrying place I would say.
The five biggest cement and aggregates producers in the world are
Lafarge, Holcim, Heidelberg Cement, Cemex and CRH, who between
them have annual revenues of some US$ 90 billion and a cement
production capacity in the neighbourhood of 500 million tonnes per
year. In the global sense that is not a worryingly big share, because the
world’s annual cement production is around 4 billion tonnes.
However, in many markets, particularly parts of Europe and North
America, these five companies are the only players in town for many
customers. Although these are global companies, cement and aggregates
is a localisedbusinessbecauseof thehigh transportation costsof relatively
heavy, low value materials. So in many regions, local contractors and
other customers don’t get the benefit of all five producers competing
against each other.
If these two connected deals go through, it means that the same
production capacity will be held by four competitors instead of five.
That is clearly a threat to competition and could re-open the door to
the market abuses and cartel behaviour which the industry says it has
put behind it.
In fairness, the CRH acquisition is not a done deal just yet. Like
any other purchase on this scale, it needs to be approved by regulatory
authorities, and they have the power to block it or insist ondivestments.
So then there comes the question of who would by those divested
businesses? If they are relatively small operations inmature European or
North American markets, it is difficult to see anyone coming forward
who is not already in the industry.Thewholepackageof Lafarge-Holcim
divestments might have attracted a private equity or emerging market
upstart as abuyer, but it doesn’t seem likely those types of companieswill
be interested in a cement plant here and a quarry there.
It remains to be seen how regulators will react to this deal, but it
is difficult to see how it can be reconciled with the aim
of providing a genuinely competitive market and real
customer choice.
Chris Sleight
Editor
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COMMENT
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international
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