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Business News/ Companies / News/  CCI clears Holcim-Lafarge merger with riders
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CCI clears Holcim-Lafarge merger with riders

Antitrust regulator has proposed certain modifications to the deal, including the sale of some assets in eastern India

On​16 March, the plan to create the world’s biggest cement company had been at risk of unravelling as both Holcim and Lafarge disagreed over the leadership and financial terms, placing the future of the $40 billion merger in jeopardy. Photo: BloombergPremium
On​16 March, the plan to create the world’s biggest cement company had been at risk of unravelling as both Holcim and Lafarge disagreed over the leadership and financial terms, placing the future of the $40 billion merger in jeopardy. Photo: Bloomberg

Mumbai: The Competition Commision of India (CCI) has approved a proposed merger between the Indian units of French cement firm Lafarge SA and Switzerland’s Holcim Ltd with riders.

The antitrust regulator has proposed certain modifications to the deal, including the sale of some assets in eastern India to eliminate anti-competition concerns.

Based on an assessment of the likely adverse effects of the proposed merger on competition in the market for grey cement in the eastern region, CCI said “it would be appropriate to propose divestiture as a remedy to eliminate the competition concerns emanating from both sources of harm".

The CCI has posted the ruling on its website.

Holcim’s two local units—ACC Ltd and Ambuja Cements Ltd, have a combined annual capacity of 58.75 million tonnes (mt), making it the country’s second-biggest maker of the building material.

Lafarge has a total cement production capacity of 11mt in India, according to its website.

Aditya Birla Group-promoted UltraTech Cement Ltd is India’s largest cement maker by capacity. UltraTech has the capacity to produce over 60.2mt. In December, UltraTech agreed to buy two cement plants of Jaiprakash Associates Ltd in Madhya Pradesh, which would take its capacity to 65 million tonnes per annum (mtpa). UltraTech is executing other projects that are aimed at raising its capacity to 71mtpa when they are completed.

On 20 March, Holcim and Lafarge said they had reached an agreement on revised terms for a merger of equals. Both parties agreed on a new exchange ratio of nine Holcim shares for 10 Lafarge shares, Holcim had said.

On 16 March, the plan to create the world’s biggest cement company had been at risk of unravelling as both Holcim and Lafarge disagreed over the leadership and financial terms, placing future of the $40 billion merger in jeopardy.

CCI, in its 51-page order, said it had examined various combinations of plants located in the states of Jharkhand, West Bengal and Chhattisgarh and “decided that a divestiture of Lafarge’s Jojobera plant located in Jharkhand with a cement grinding capacity of 4.6mtpa and Lafarge’s integrated unit located at Sonadih in Chhattisgarh with a cement grinding capacity of 0.55mtpa and clinker capacity of 3.10mtpa would be most effective" in eliminating the concerns it raised.

To be sure, there are several buyers in the Indian market.

On 19 March, Mint reported that Ultratech Cement, Rajasthan-based JK Lakshmi Cement Ltd, HeidelbergCement India Ltd, JSW Cement Ltd and Orient Cement Ltd were evaluating potential acquisitions, citing people familiar with the development. The reason: in a business that analysts describe as in a perennial consolidation mode—for reasons related to economies of scale and the need to localize or at least regionalize manufacturing to meet local or regional demand—is limestone.

According to Indian Bureau of Mines, India has total cement-grade limestone reserves of just under 9 billion tonne.

Based on this, a Planning Commission working group on mine exploration and development for the 12th five year Plan between the years 2012 and 2017, said that no cement capacity addition would be possible beyond 2023-24 if the cement sector grew at a projected rate of 12%, given the environmental constraints over tapping cement-grade limestone resources, of which India has around 120 billion tonne.

This is one reason why cement firms prefer to buy existing assets with limestone sources as opposed to investing in new plants.

“A package of asset divestments has been agreed with the CCI which includes one cement plant and one grinding station from Lafarge (with a total of approximately 5 million tonne annual cement capacity) in eastern India," said Lafarge in a statement.

These two assets for disposal include Sonadih cement plant and Jojobera grinding station.

“India is an important market for the future Lafarge-Holcim Group with a balanced portfolio in cement, aggregates, and ready-mix concrete. The combined group will have a cement capacity of around 68 million tonnes in India. The divestment process will be carried out in the framework of the relevant social processes and ongoing dialogue with the employee representatives’ bodies," Lafarge said.

The closing of the planned merger is expected in July 2015, aiming to create the most balanced and diversified portfolio in the industry, operating in 90 countries and creating superior value for all its stakeholders, Lafarge said.

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Published: 01 Apr 2015, 08:52 PM IST
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