Holcim and Lafarge Merger
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...............
- 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. ................................