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Holcim and Lafarge Merger*

CASE STUDY, ACCOUNTING, FINANCE AND CONTROL
ET Cases - GSMC, 11 Pages

Case Preview

Holcim and Lafarge Merger

 

On April 7th 2014 the two biggest cement players Holcim of Switzerland and France’s Lafarge announced that they would be merging to create the world’s biggest  cement maker. Now half a year later on October 10th 2014, Lafarge CEO Bruno Lafont announced that they were about to request approval from the European  Commission (EC) and the companies were to close the deal in first half of 2015. These events would definitely have a significant impact on the global cement industry.  Many Private Equity and competitor firms were watching the deal closely and were also expected to take part in the process. The future forecasts of the cement industry  were expected to improve as countries were coming out of recession. Also higher growth in the emerging countries would also drive cement demand due to the major infrastructure projects been planned. How will the deal benefit both the parties? Was the decided exchange ratio too high or low and based on it how much of the  synergies would accrue to Holcim and Lafarge? How did the market valuations look like for both the companies and did it justify the premium paid by Holcim to Lafarge?  Analysts pondered the answers to these questions........................

Teaching Note Preview

Holcim and Lafarge Merger

 

Synopsis

On April 7th 2014, Holcim, world’s third largest cement maker by capacity of Switzerland announced its decision to buy France’s Lafarge, world’s second largest by capacity to create the world’s biggest cement maker overtaking Anhui Conch of China. This merger structured as a stock transaction at an exchange ratio of 1:1 was expected to be completed by the first half of 2015. The case study attempts a comparable company analysis and a dilution/accretion analysis to analyze the premium paid by Holcim. Significant divestments of assets are also expected to happen to comply with the regulatory bodies of various countries. This case  study presents the current situation of the merger attempting to answer the following questions. How will the deal benefit both the parties? Was the decided exchange ratio too high or low? Is the exchange ratio justified for the merger? Based on the decided exchange how much of the synergies would accrue to Holcim and Lafarge? How did the market valuations look like for both the companies and did it justify the premium paid by Holcim to Lafarge? How will the merger affect the cement industry? What are the changes required to comply with regulators and what will be the competitors react in response? The perspectives of current shareholders of the two companies, credit rating agencies and stock market reactions are also discussed.

Expected Learning Outcomes

  • • Analyze the merger between two of the biggest players in the cyclic cement industry
  • • Analyze the merger looking at how the synergy is divided between the merging entities
  • • Discuss the cost of capital calculation for a global company working across multiple geographies

 

Case Positioning and Setting

This case can be used for students pursuing their Post Graduate degree in Management for the following courses:

  • • Valuation
  • • Corporate finance
  • • Mergers and Acquisitions

 

The case can also be used to teach in open programs for Finance and Strategy Executives with some modifications

Suggested Teaching Plan

The case begins with the discussion of the construction sector and its future prospects. This is accompanied by looking at the evolution of the two companies Holcim and Lafarge in the global space through acquisitions and alliances...............

Assignment Questions

  • I. What are the strategic reasons for the merger between the two biggest players in the cement industry?
  • II. Estimate the cost of capital of the merging companies to estimate the present value of synergies.
  • III. ................................

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Product code: FIN-1-0014, FIN-1-0014A

Abstract

On April 7th 2014, Holcim, world’s third largest cement maker by capacity of Switzerland announced its decision to buy France’s Lafarge, world’s second largest by capacity to create the world’s biggest cement maker overtaking Anhui Conch of China. This merger structured as a stock transaction at an exchange ratio of 1:1 was expected to be completed by the first half of 2015. The case study attempts a comparable company analysis and a dilution/accretion analysis to analyze the premium paid by Holcim. Significant divestments of assets are also expected to happen to comply with the regulatory bodies of various countries. How will the deal benefit both the parties? Was the decided exchange ratio too high or low? Is the exchange ratio justified for the merger? Based on the decided exchange how much of the synergies would accrue to Holcim and Lafarge? How did the market valuations look like for both the companies and did it justify the premium paid by Holcim to Lafarge? How will the merger affect the cement industry? What are the changes required to comply with regulators and what will be the competitors react in response? The  perspectives of current shareholders of the two companies, credit rating agencies and stock market reactions are also discussed.



Pedagogical Objectives

  • To analyze the merger between two of the biggest players in the cyclic cement industry
  • To analyze the merger looking at how the synergy is divided between the merging entities
  • To discuss the cost of capital calculation for a global company working across multiple geographies

Case Positioning and Setting
This case can be used for students pursuing their Post Graduate degree in Management for the following courses:

  • Valuation
  • Corporate Finance
  • Mergers and Acquisitions
The case can also be used to discuss in Open Programs for Finance and Strategy Executives with some modifications

* GSMC 2014, IIM Raipur

This Case Pack Includes:
- Abstract
- Case Study
- Teaching Note (**ONLY for Academicians)
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