- In interview, Olsen says Indian assets will get good price
- LafargeHolcim forced to sell more than anticipated in country
LafargeHolcim Ltd. Chief Executive Officer Eric Olsen said the company is attracting strong interest for capacity it’s forced to sell in India following a merger that created the world’s largest cement maker.
Emerging from the combination last year of France’s Lafarge SA and the Swiss Holcim Ltd., the company based in Jona, Switzerland, now has to divest 11 million tons of capacity, or one sixth of its total in India, a market that Olsen described in an interview as its “number one country.”
“We see a wide range of interest, both financial and strategic,” Olsen, 51, said by telephone from Mumbai. “We expect to get a very attractive price overall.”
India offers growth in demand for construction materials not seen in some other emerging markets. Yet LafargeHolcim has ended up having to sell almost double the capacity initially anticipated for antitrust reasons. The extra demands from regulators, which will result in the sale of the entire Lafarge side of the India business, stem from changes in Indian rules on mining.
At the same time as selling assets in India and working through integration of the former French and Swiss rivals, LafargeHolcim is facing a slowdown in markets from China to Brazil and upheaval within the ranks of top management. Investors have sent shares down 27 percent since the start of the year, more than twice the drop in the broader STOXX 600 Construction & Materials index of companies. The stock rose as much as 4.9 percent on Monday before paring gains. It traded 3.2 percent higher to 36.46 Swiss francs at 9:23 a.m. in Zurich.
Last week, the company announced the departure of Chairman Wolfgang Reitzle, who helped steer the merger and will move to Linde AG. His exit comes a little more than two months after the arrival of Chief Financial Officer Ron Wirahadiraksa from Royal Philips NV.
For Olsen, a dual U.S. and French citizen who joined Lafarge in 1999 and became CEO in July, LafargeHolcim has “very clear governance” and change at the top “is a normal evolution in the company.”
For some analysts including Ute Haibach at J. Safra Sarasin, the shuffle may not be straightforward. “The news suggests that governance will be complicated within the company in the short-term, with the CEO being in charge only since July 2015,” Haibach wrote in a note last week.
Proceeds from the sale of assets in India will be put towards meeting LafargeHolcim’s target to sell 3.5 billion Swiss francs ($3.6 billion) worth this year, Olsen said in the interview. A key promise to push the merger through was also the delivery of 1.4 billion euros in annual savings within three years, as the company expects its industry-topping size to help overcome a slowdown.
“We are moving forward with this divestment and several others as quickly as possible,” Olsen said. “We have plans in place to meet and exceed our synergy commitments.”
Scraps Birla Agreement
The CEO’s response to shareholders unhappy with the share price is that LafargeHolcim has “plenty of pockets of market strength” within its portfolio and that the “mid-term commitments we made in December remain absolutely deliverable.”
In India, which contributes 12 percent of revenues, LafargeHolcim had to scrap an agreement to sell two cement plants with an annual capacity of 5.15 million tons to Kolkata-based Birla Corp. for a total enterprise value of 50 billion rupees ($735 million). It’s now planning to sell three plants and two grinding stations.
“There is a lot of interest in India and for good reason,” Olsen said. “The demand outlook in India is extremely positive. We are expecting to see attractive growth in 2016.”