Lafarge SA and Holcim Ltd. officials see financial benefits and integration possibilities in their proposed “merger of equals,” netting LafargeHolcim—present in 90 countries with $44 billion in sales; 470 million and 384 million tons of cement and aggregate shipments, respectively; plus, 90 million yd. of ready mixed production. The strategy they outlined in Zurich and Paris last month leads to a mid-2015 1:1 share exchange, the merged business operating under executives and directors drawn equally from both companies.
A divestment committee will identify assets, representing up to $7 billion in sales, whose disposal is tied to gaining regulatory approvals in countries where LafargeHolcim would have concentrated presence. In North America, a region Lafarge and Holcim each entered with greenfield cement plants well before a late-1970s rethinking of antitrust law ushered waves of cement, concrete and aggregate producer consolidation, the proposed union will compel regulatory review in markets from Nova Scotia to Ontario and New England to Virginia to Iowa.
Across expanses along each side of the border, Lafarge North America, Holcim (Canada) and Holcim (US) have cement production and distribution plus scattered integrated concrete, aggregate and asphalt businesses. They have limited overlap in Mid-Atlantic pockets. The greatest scrutiny will likely center on Toronto, where the producers have solid integrated platforms and regulators have precedent: the sale of St. Marys/CBM assets, operating as Blue Circle Canada, accompanying Lafarge SA’s 2001 takeover of Blue Circle Industries—seeding Votorantim Cement North America.
The prospect of a common parent company for Lafarge NA, Holcim (Canada) and Holcim (US) stands to test “Best Practices on Cooperation in Merger Investigations,” a revised version of which the U.S. Department of Justice Antitrust Division and Federal Trade Commission adopted along with Competition Bureau Canada (CBC) two weeks prior to the LafargeHolcim announcement. It examines what DOJ notes is effective day-to-day cooperation between the agencies, including how they a) communicate with each other and benefit from the similarity of their respective merger review timetables; analyze market impact evidence; address remedies and settlements tied to anticompetitive circumstances; and, promote measures furthering the likelihood of consistent outcomes when both countries review the same merger.
The document seeks to make transparent practices U.S. agencies and the CBC apply to investigations. One Antitrust Division or FTC benchmark likely in any LafargeHolcim review surfaced in this column (“The Flaw of Antitrust Laws,” January 2012) as Martin Marietta Materials pursued a Vulcan Materials merger: the Herfindahl-Hirschman Index (HHI), which gauges business combinations’ effect by the squares of key producer market shares, (302 + 302 + 202 + 202 = 2,600 points). Agencies look for mergers raising HHI 100 points or more in moderately concentrated markets (1,500–2,500 points) or 100–200 points in highly concentrated markets (HHI > 2,500).
HHI calculations for Lafarge and Holcim might trigger proposed remedies on either side of the U.S.–Canada border. In that instance, the best practices document is worded for a transaction where parties can leverage construction materials production, storage and delivery across markets linked by efficient transportation channels no less than the Great Lakes: “When a merger affects markets in Canada and the U.S., remedies offered to reviewing agencies may be similar or identical. Even if the geographic or product markets or the competitive effects of the merger are not identical in both jurisdictions, the remedies offered in one jurisdiction may be linked to, dependent on, or have an effect on, those offered in the other jurisdiction.”