Holcim Ltd. (HOLN), the world’s biggest cement maker, faces an in-depth European Union probe into its purchase of Cemex SAB (CEMEXCPO)’s western German plants after regulators said it may substantially reduce competition.
The European Commission cited concerns that the deal could allow German and Belgian cement producers to coordinate as it extended its deadline to rule on the deal until March 10. The EU authority can require companies to sell assets or change business behavior to alleviate competition issues.
“The removal of a significant player such as Cemex West could render coordination more effective and sustainable, thus potentially removing incentives for competitors to expand in regions where Holcim is strong,” the commission said in a statement on its website today.
Cemex, the biggest cement maker in the Americas, and Holcim are swapping assets in Europe in a deal that also sees Monterrey, Mexico-based Cemex pay 70 million euros ($96 million) in cash as part of the transaction, according to a statement in August. Cemex is working to bolster its European business after it refinanced part of its debt, sold shares in a Latin American unit and won credit upgrades as it rebounded from the U.S. housing bust that pushed it close to default.
Holcim, based in Jona, Switzerland, is also selling Spanish assets to Cemex as part of the series of deals. Spain has asked the EU to review that transaction. Czech merger authorities will examine Cemex’s bid for Holcim’s operations in the country.
Peter Stopfer, a spokesman for Holcim, said the company can’t anticipate when competition authorities will approve the series of transactions with Cemex in Germany, the Czech Republic and Spain, according to an e-mailed statement.
“Most likely, it would be in the first half of 2014,” Stopfer said. “During this time we will continue collaborating with the competition authorities and expect to finalize the due diligence soon.”
Holcim’s acquisition of Cemex plants in western Germany plus a “small number of plants and sites” in France and the Netherlands would remove a strong competitor and may lessen incentives for rivals to expand in regions where Holcim is strong, the commission said in its statement. The EU’s initial probe showed that the combined company could raise prices for granulated blast furnace slag, a by-product of steel production used to make cement or concrete.
Jorge Perez, a spokesman for Cemex in Monterrey, didn’t immediately respond to an e-mail seeking comment.
Cemex expects the accord with Holcim to boost earnings before interest, taxes, depreciation and amortization by as much as $30 million annually starting in 2014 while complementing its operations in eastern Germany and Poland, it said in August.
Holcim and Cemex are among cement companies being probed by the EU’s antitrust watchdog over possible price fixing and import limits in an investigation opened in 2010.
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