Holcim-Lafarge deal may lead to merger of Malaysian units

PETALING JAYA: Analysts opine that Holcim Malaysia is likely to be likely to be merged with Lafarge Malaysia given the news of the merger between the latter's French parent and Switzerland's Holcim Ltd.
On Monday, Holcim unveiled a deal to buy Lafarge to create the world's biggest cement maker. Completion of the merger exercise is expected by the end of the first half of 2015, subject to obtaining regulatory approvals.
"We believe there is a possibility that Holcim Malaysia could be injected into Lafarge Malaysia over the longer term given that there is minimal overlapping of business (in terms of geography) and there will be increased efficiencies in streamlining the Malaysian operations," Maybank IB Research said in its report yesterday.
It said such a merger would see, Lafarge, which is presently the dominant cement player in Peninsular Malaysia with about 40% market share, increase its total market share to 44%.
Maybank IB estimates that if the injection materialises, the earnings accretion to Lafarge Malaysia will likely be below 5% of profit after tax and minority interests.
"We estimate that the combined earnings before interests, tax, depreciation and amortisation (ebitda) of Lafarge Malaysia and Holcim Malaysia accounts for just 2% of Lafarge Holcim's total ebitda. Hence, we think there is no need for the parents to dispose any of the Malaysian assets."
It added that the injection cost to Lafarge Malaysia could be RM210 million, and two possibilities for this potential injection include a cash deal and share swap.
"We believe Lafarge will opt for the former given its high net cash position of RM450 million (as at Dec 2013) and the need for management to continuously improve its return on equity."
Meanwhile RHB Research Institute, which also believes that the two's merger may lead to the merger or acquisition of the Malaysian units, said sees such a move as synergistic.
"This may lead to merger with/acquisition of Holcim Malaysia that we deem synergistic and will fortify Lafarge Malaysia's leading position in West Malaysia's cement market. No announcement on this has been made, though," it added.
Both research houses maintained their buy rating on Lafarge, with MaybankIB Research placing an unchanged target price at RM9.90 while RHB kept Lafarge's fair value at RM9.61.
A Lafarge Malaysia spokesperson when contacted said it is too early to comment on the impact to its Malaysian operations.
"All negotiations are being done at the group's level (global) and we're not able to comment," the spokesperson said.