Germany’s HeidelbergCement AG plans to buy rival Italcementi SpA for 3.7 billion euros ($4.1 billion) as the world’s second-biggest cement maker puts its repaired balance sheet to work to follow industry leader LafargeHolcim Ltd. down the path of consolidation.
HeidelbergCement will initially buy Italmobiliare SpA’s 45 percent stake, paying 10.6 euros for each share, or 1.67 billion euros total in stock and cash, and then offer the same for each share held by outstanding investors once the first transaction is approved, it said in a statement Tuesday.
The price offered for each share is 61 percent higher than Italcementi’s closing price before the deal was announced. On Wednesday, Italcementi surged as much as 55 percent in Italian trading while HeidelbergCement dropped as much as 5.5 percent in Frankfurt.
The deal represents HeidelbergCement’s biggest since the 7.9 billion-pound acquisition of Britain’s Hanson Plc in 2009. Chief Executive Officer Bernd Scheifele has managed to give the company more breathing space from the debt built up in that ill-timed takeover, allowing him to pursue an expansion just weeks after Holcim and Lafarge completed their industry-transforming merger of the biggest cement companies in Switzerland and France.
Still, London-based Bernstein analyst Phil Roseberg said the Italcementi acquisition could backfire and hurt earnings.
“We struggle to see the strategic rationale for Heidelberg,” he said in a note to clients. “Acquiring more mature markets that are in long-term contraction, and having to deal with markets with clear issues -- Italy, France, Egypt, Thailand -- are problems that could have been avoided.”
The acquisition of Italcementi will expand HeidelbergCement’s operations in Mediterranean countries such as Italy and Egypt as well as in France and Belgium, which combined represent the Bergamo, Italy-based company’s biggest market.
“With the market recovery gaining traction in southern Europe and the U.S., it is now the right time for us to accelerate our growth,” Scheifele said Tuesday.
Italcementi’s stock has gained 33 percent this year, valuing it at 2.3 billion euros. The deal gives HeidelbergCement the greatest boost in the Middle East and Africa, doubling its market share in that region to a similar level to Dangote Cement Plc, according to data compiled by Bloomberg Intelligence. It will still lag LafargeHolcim there.
LafargeHolcim has predicted its combination will lead to cost savings of 1.4 billion euros annually within three years, giving it an advantage over rivals after an economic slowdown eroded demand for building materials and forced some kilns to run at a loss.
Since cement and concrete are usually manufactured at locations close to their end market, consolidation has grown pace as the industry’s biggest players seek to extend their geographic reach and build their network of small customers. HeidelbergCement expects annual synergies of 175 million euros by 2018.
HeidelbergCement’s offer for its Italian competitor adds to one of the busiest deal weeks in years, including Teva Pharmaceutical’s $40.5 billion purchase of Allergan Plc’s generic drug business on Monday, and Honeywell International Inc.’s agreement to pay $5.1 billion for metering company Elster on Tuesday.
HeidelbergCement agreed to sell its building materials division to Lone Star Funds for $1.4 billion in December, and the German cement maker has been looking since for ways to spend that money since then. Those funds will be augmented by issuing as much as 10.5 million new shares to Italmobiliare.
The deal will initially be financed through cash and a fully underwritten bridge financing of 4.4 billion euros by Deutsche Bank and Morgan Stanley. That will partially be repaid by one billion euros in asset sales and new debt sales.
As a result of the takeover, HeidelbergCement now expects revenue to top 20 billion euros by 2020, with earnings before interest, taxes, depreciation and amortization of more than 5 billion euros. That compares with earlier goals of 17 billion euros and 4 billion euros respectively.
Last year’s revenue was 12.7 billion euros, while Italcementi generated 4.2 billion euros.
Ebitda rose 15 percent to 752 million euros in the second quarter. That was in line with the average estimate of 10 analysts in a Bloomberg survey. Sales increased 10 percent to 3.6 billion euros.