Merger-bound parent companies prepare Essroc, Lehigh asset sale: one mill, nine terminals

Sources: U.S. Federal Trade Commission; HeidelbergCement AG, Germany; CP staff

The Federal Trade Commission has outlined terms of the final regulatory clearance hovering the proposed merger of Lehigh Hanson Inc. and Essroc Cement Corp. parents HeidelbergCement AG and Italcementi S.p.A. A June 17 consent agreement calls for the sale of a) Essroc’s 2-million ton/year Martinsburg, W.V., mill plus seven Maryland, Pennsylvania and Virginia terminals; and, b) Lehigh’s Solvay, N.Y., terminal. A suitor will also have a purchase option for two Essroc terminals in Ohio.

The Martinsburg mill—the most modern cement operation serving mid-Atlantic markets—and integrated distribution assets are to be sold to an FTC-approved buyer within 120 days of the HeidelbergCement–Italcementi union. Most immediately, the merged entity will have 10 days to sell Essroc’s Indianapolis cement terminal to Cemex USA, the only buyer indicated in FTC preliminaries.

The consent agreement settles agency charges that the $4.2 billion merger, announced in July 2015, would likely harm competition in Indianapolis and four other regional markets for portland cement: Baltimore-Washington, D.C.; Richmond and Virginia Beach-Norfolk-Newport News, Va.; and, Syracuse, N.Y. An FTC complaint concurrent with the agreement alleges that the merger as originally proposed would reduce the five markets’ number of competitively significant cement suppliers from three to two. It also alleges that absent a remedy, the merged business would be more likely to unilaterally raise prices in the markets and ease conditions for peers to coordinate successfully to raise prices. The FTC will publish the consent agreement in the Federal Register and open it to public comment through July 20.

“We are very pleased with the positive decision of the Federal Trade Commission,” affirms HeidelbergCement Chairman Dr. Bernd Scheifele, noting that the asset divestment process has commenced and drawn significant interest. The merger will take place in two steps, he adds, the first on track for early July. HeidelbergCement will initially acquire a controlling Italcementi stake of 45 percent from Italmobiliare S.p.A., then propose a public mandatory offer to the remaining shareholders for the acquisition of their shares in return for a cash payment. HeidelbergCement expects the entire transaction to be completed in the second half of 2016.

The FTC action follows clearances HeidelbergCement and Italcementi obtained in May from regulators responsible for Canadian and European Union markets where the companies have overlapping or tandem cement, aggregate or concrete production and distribution. No asset transactions were indicated in Canada, where Essroc Cement and Lehigh Hanson have respective strengths in Eastern and Western Provinces. The European Commission approved the merger plan based on a HeidelbergCement-proposed sale of Italcementi assets centered in Belgium.