Regulators exact deep concessions in Lafarge, Holcim merger reviews

Federal Trade Commission and Canadian Competition Bureau (CCB) have outlined consent agreements approving the scope or direction of Lafarge North America, Holcim (US) Inc. and Holcim (Canada) Inc. operations following the Lafarge S.A. and Holcim Ltd. merger. The mega-deal is set to close in July as an exchange offer commences this month: 10 Lafarge shares for nine Holcim shares, netting LafargeHolcim.

The proposed union triggered what was likely one of the most complex investigations of cementitious material production and distribution markets in FTC history. Agency peers north of the border were spared a comparable probe, owing to a Holcim Ltd. commitment to unload the entire Holcim (Canada) enterprise. Officials in Washington, D.C., and Ottawa conducted individual investigations on how a merger would impact portland cement and slag cement customers across numerous states and provinces. They jointly examined export activity of the Holcim (Canada) Mississauga, Ont., plant to U.S. terminals in the Great Lakes and Northeast, and the Holcim (US) Three Forks, Mont., plant to two Alberta terminals.

Asset sales anchoring the FTC and CCB consent agreements represent an unprecedented transfer of North American cementitious material production, processing and distribution capacity: Four portland cement plants, two in each country; two Holcim (US) GranCem slag cement mills; and, by Concrete Products estimates, 16 U.S. (seven Lafarge, nine Holcim) and 13 Holcim (Canada) terminals. Additional assets to be sold include the remainder of Holcim (Canada)—30-plus ready mixed plants, 15-plus aggregate sites, along with integrated asphalt and construction units—under the Ontario and Quebec flagships, Dufferin and Demix. Regulator-approved buyers and their target assets are:

  • Buzzi Unicem USA, Bethlehem, Pa.: Holcim (US) terminals in Rock Island, Ill., plus Elmira and Grandville, Mich.
  • CRH Plc, Dublin: Entire Holcim (Canada) portfolio, plus Holcim (US) Three Forks plant and terminals in Buffalo, N.Y.; Cleveland; Detroit and Dundee, Mich.; and, Duluth, Minn.—all integral to the Holcim Mississauga plant.
  • Eagle Materials, Dallas: Holcim (US) Chicago Skyway slag cement plant.
  • Essroc Cement Corp., Nazareth, Pa.: Holcim (US) Camden, N.J., slag cement plant and Everett, Mass., terminal.
  • Summit Materials LLC, Denver: Lafarge Buffalo, Iowa, cement plant and seven terminals up and down the Mississippi River, all to be integrated with Continental Cement business.

Transfer of portland and slag cement operations, FTC officials note, will remedy market concentration levels exceeding those in the agency’s 2010 Horizontal Merger Guidelines. Central to that document is the Herfindahl-Hirschman Index (HHI), calculated by squaring major producers’ market shares: 30² + 30² + 20² + 20² = 2,600, for example. The “highly concentrated” market threshold is 2,500. Absent Lafarge U.S. and Holcim (US) asset sales amid the parent companies’ merger, FTC figures, the HHI for portland cement and slag cement in 12 markets and two regions “would exceed 3,400, making every market highly concentrated according to the Guidelines. The increase in HHI in each market would exceed 900, well above the 200-point change necessary to trigger presumption that the merger is ‘likely to enhance market power’ … Evidence suggests that the estimates of market concentration understate [FTC] concerns.”

“Substantial evidence demonstrates that, for many customers in the [12 markets and two regions], the merging firms are their preferred suppliers and that customers have benefitted from substantial head-to-head competition between the parties in negotiating prices for portland and slag cement,” the Commission contends. “Customers in every single one of the affected markets expressed concern that their inability to play the merging parties off each other would diminish their ability to obtain better prices or other favorable terms.”

Now that regulators have completed their work on a merger as good as sealed, realignment of key U.S. and Canadian cement markets is certain.