Mumbai: A potential global merger between Holcim Ltd and Lafarge SA could bring the combined entity within striking distance of becoming the largest cement maker in India, but may also invite scrutiny by the Competition Commission of India (CCI), the antitrust regulator, industry executives said.

Holcim’s two Indian units, ACC Ltd and Ambuja Cements Ltd, have a combined annual capacity of 45 million tonnes (mt), making Holcim the country’s second biggest maker of the building material. Lafarge has a total cement production capacity of 8 mt in the Indian market, according to the company’s website.

Aditya Birla Group company UltraTech Cement Ltd is now India’s largest manufacturer of cement with an installed capacity of 57 mt per annum.

A Holcim executive in India said a global merger between the Swiss firm and Lafarge was a distant possibility because both are strong companies with sound financials.

“Lafarge is the world’s No. 1 cement maker while Holcim is No. 2. If at all the merger takes place, it will be potentially an unchallenged leader in India," he added on condition of anonymity.

A second Holcim executive said both companies were in “discussions exploring a possible merger". An email sent to a Holcim spokesperson on Friday night did not elicit an immediate response.

A senior official indicated that the merger, if it happens, would be a friendly one. The idea was broached by the boards keeping in mind the ongoing global slowdown.

The merger plan is likely to be a five-year project starting 2014, said the official.

According to estimates by Nitin Bhasin, infrastructure analyst at Ambit Capital Pvt. Ltd, the top six cement companies in India have nearly 200 mt of the total 350 mt of capacity. UltraTech, ACC and Ambuja are the top three in terms of capacity.

A senior executive at UltraTech said Holcim, which is already grappling with problems in merging Ambuja and ACC, may find it difficult to combine a third brand with its operations in India.

“However, if the two companies decide to create one single brand (along with Ambuja and ACC) and operate in India, then Indian cement players could see challenges in terms of growth and demand wars," said the executive on condition of anonymity.

“As far as the CCI clearance is concerned for the deal, that should be a worry. Although in some other countries the merger may have to go through tough clearance," he said.

The news of a potential merger between Holcim and Lafarge isn’t surprising, said Anil Singhvi, a former managing director and chief executive officer of Ambuja Cements and now chairman of Ican Investment Advisors, an investment banking and corporate advisory firm.

“There have been indications over the last six-eight months when major shareholders of the two companies have been buying stakes in the other firm," Singhvi said.

In 2013, Holcim decided to consolidate its holdings in India under Ambuja Cements. As part of a complicated restructuring that followed, Holcim India transferred 50% of its stake in ACC to Ambuja Cements in exchange for cash and shares. Holcim’s stake in Ambuja consequently rose to around 61.39% from 50% earlier, after Holcim India merged itself with Ambuja.

If Holcim were to merge with Lafarge at a global level, the French cement maker will gain control of both ACC and Ambuja in India.

“It has to be seen whether Lafarge can retain control of both ACC and Ambuja in India," Singhvi said. He reasons that one of the two firms may be up for sale.

A merger between the two global cement makers could also lead to geographical consolidation in India, said Nitin Gupta, a partner and leader of the cement practice at audit and consulting firm EY. “Lafarge is very strong in east of India while Holcim is very strong in rest of the country," Gupta said.

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