Holcim sets sight on two new markets

The world's number two cement producer expands to India Keystone

Swiss cement giant Holcim has agreed to buy Britain's Aggregate Industries for £1.8 billion (SFr4 billion), and has announced a new venture in growth market India.

Holcim said on Thursday that it had reached unanimous agreement with Aggregate Industries – one week after it publicly flagged its intention to acquire the UK company.

The offer price represents a 22.8 per cent premium over Wednesday’s closing share price for the British company.

Holcim, the world’s number two in cement, will finance the investment with existing cash balances and new committed credit facilities.

It says the deal will give it access to the key British market and create savings worth £100 million by 2007.

Holcim also hopes that it will reap the rewards of replicating the British group’s business model in its own aggregates business.

Aggregating synergies

“The combination with Aggregate Industries strengthens the position of Holcim as an integrated supplier of building materials,” said Holcim chief executive Markus Akermann.

“Aggregate Industries brings high quality aggregates and downstream businesses giving important value benefits for Holcim in the United States,” he added.

“Entry into the attractive British market is part of our strategy of being present in all key markets.”

Analysts point out that the British acquisition represents a double strategic shift for the Swiss company, although it does not amount to an outright change of direction.

First, it constitutes a change from Holcim’s historical – and highly successful – focus on emerging markets.

Second, it will help Holcim develop into the market for aggregates – products such as sand, gravel and ready-mixed concrete – as opposed to its traditional focus on the pure cement market.

But some analysts question the amount offered, pointing out that profit margins in the aggregates business are notably lower than in the pure cement sector.

Entering India

In a separate development, Holcim also announced on Thursday a strategic alliance with India’s Gujarat Ambu Cements.

The company said it would invest a total of $800 million (SFr948 million) to secure its long-term position in the Indian market – the world’s second largest for cement.

Analyst Rudi Buxtorf of Coutts Bank Switzerland said Holcim’s move into India confirmed the company’s continued commitment to expanding in emerging markets.

He added that it counterbalanced concerns that the company’s interest in Aggregate Industries was a step away from its former strategy.

The latest deals are further evidence of moves towards greater consolidation in the highly fragmented global cement market.

They follow Mexican cement company Cemex’s £2.3 billion takeover of British rival RMC last September.

Holcim shares rose some five per cent in trading following the announcements on Thursday.

swissinfo with agencies

Key facts

Holcim, formerly known as Holderbank, is the number two player in the cement sector after Lafarge of France.
Holcim employs 48,000 people in more than 70 countries and had 2003 revenue of over SFr12 billion.
Aggregate Industries employs 8500 people and had 2003 revenue of £1.46 billion (SFr3.23 billion).