Lafarge will get cash proceeds of about 850 million euros from the sale of the European and South American assets, the Paris-based cement maker said in a statement today. It will retain a 20 percent stake in the combined business.
Etex, which fended off competing interest from buyout firms, is building on an existing alliance with Lafarge in Latin America as builders there adopt gypsum-based wallboard as a faster alternative for interior walls and ceilings. The Brussels-based company has turned to emerging markets to bolster profit, against a backdrop of sluggish demand for tiles, corrugated panels and other building products in European construction markets.
“At first glance, positive news,” said Marc Nettelbeck, an analyst at DZ Bank, with a “sell” rating on Lafarge. “The company found a smart solution” to excluding the underperforming U.S. business, he said.
The gypsum operations to be integrated into Etex generated sales of 895 million euros and earnings before interest, taxes, depreciation and amortization of 115 million euros last year. The price paid including debt is 8.7 times last year’s Ebitda, in line with the average multiple paid in building-material deals over the past two years, according to data compiled by Bloomberg.
Lafarge shares gained as much as 2.2 percent to 40.50 euros in Paris, and they traded at 40.16 euros as of 9:11 a.m.
In Europe, the largest competitors in the wallboard market are France’s Cie. de Saint-Gobain SA and Germany’s Knauf Gips KG. In the U.S., Lafarge faces rivals such as Saint-Gobain and Chicago-based USG Corp. (USG) and Delcor Inc.’s National Gypsum. (NGCO)
The sale takes Lafarge a step closer to regaining an investment grade credit rating. Chief Executive Officer Bruno Lafont, who ran the unit from 1998 to 2003, has pledged to step up asset sales and cut spending to trim debt by at least 2 billion euros this year, after Lafarge was relegated to junk status by Standard & Poor’s in March.
The disposal will have a positive impact on Lafarge’s rating, spokeswoman Claire Mathieu said by phone.
Etex is paying a “fair price,” said Levon Babalyan, an analyst at Cheuvreux, with an “underperform rating” on the French company. Lafarge’s debt to Ebitda ratio stands to fall to 3.4 times as a result of the deal, he said.
The deal will provide a “welcome but rather modest reduction” to Lafarge’s leverage, Babalyan said.
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