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Cemex, Holcim Embark on Asset Swap to Improve Earnings

Cemex SAB, the biggest cement maker in the Americas, will buy Holcim Ltd.’s Czech operations while selling plants in western Germany to the Swiss company as part of an asset swap to improve profitability in Europe.

The companies also will combine operations in Spain, with Holcim paying Monterrey, Mexico-based Cemex 70 million euros ($94 million) in cash as part of the transactions, according to a statement today.

Cemex is working to bolster 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. The accord with Holcim, the world’s biggest cement maker, will 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, Cemex said.

“From a network perspective, we will strengthen our presence in that part of Europe, which is core to us,” Juan Pablo San Agustin, Cemex’s executive vice president of strategic planning and new business development, said in a telephone interview from Madrid. “The Czech Republic is right between our plant in Berlin and our plants in Poland.”

The increase in Ebitda will come from cuts in transportation costs and overhead, San Agustin said. Holcim said it would get a sustainable boost in Ebitda of at least 20 million euros from the deal. CEO Bernard Fontana last year signaled Holcim’s desire to trade assets with competitors to improve returns from energy-gobbling plants.


“By making this transaction, there is globally a value of close to $50 million created between the two parties,” Fontana said on a conference call. “I personally believe we have more opportunities” to make similar deals with peers, he said.

The transactions are expected to be completed in the fourth quarter, pending approval by antitrust regulators and Cemex creditors. Talks between Holcim and Cemex began six or seven months ago, San Agustin said.

Cemex slid 0.3 percent to 14.89 pesos at the close in Mexico City after climbing as much as 1.4 percent. The stock has risen 22 percent this year, compared with a 10 percent decline for the benchmark IPC index, as investors bet on a continued housing recovery in the U.S., Cemex’s largest foreign market.

Holcim said the agreements will strengthen the Jona, Switzerland-based company’s business in Germany and connect its current operations in the northern part of the country with those in France, Belgium, the Netherlands and Luxembourg. The Spanish merger will also give it “necessary flexibility.”

Grinding Mills

“Due to the existing over-capacities in Europe, the transactions looks like a win-win situation,” wrote Philipp Gamper, an analyst at Bank J. Safra Sarasin who has a neutral rating on Holcim. “However, the financial impact for Holcim is minor in the light of the remaining substantial challenges in some regions,” such as India and Indonesia.

Cemex will acquire a cement plant, four quarries and 17 ready-mix plants from Holcim in the Czech Republic.

The Swiss company will buy Cemex assets in western Germany, including a cement plant, two grinding mills, a slag granulator, 22 quarries and 79 ready-mix plants. Cemex will retain German operations in other parts of the country.

Cemex and Holcim’s combination of Spanish operations will result in the Mexican company holding a 75 percent interest in the venture there. Holcim agreed to keep its stake for at least five years and then plans to exit that market, Fontana said on the call.

Slumping Demand

Holcim’s Spanish plants are operating at 50 percent capacity as the country’s cement demand has slumped since 2007, Fontana said. There is room for further “optimization” at the plants that the company couldn’t attempt by itself as it would lose market share, he said.

Holcim shares fell 1.9 percent to 63.75 Swiss francs in Zurich. They had dropped 2.8 percent this year through yesterday, compared with a 16 percent gain for the Swiss Market Index.

Cemex has posted net losses for 15 consecutive quarters. Second-quarter revenue in northern Europe slid 1 percent to $1.09 billion, while operating earnings before interest, taxes, depreciation and amortization there dropped 11 percent to $108 million.

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