PE funds Blackstone and Apollo Global as well as Irish building materials giant CRH are among bidders shortlisted to acquire parts of Lafarge's India assets that it must sell to conclude its global merger with Holcim, reports Arijit Barman.
Two of the world's biggest private equity groups -Blackstone and Apollo Global Management -as well as Irish building materials giant CRH are among bidders shortlisted to acquire parts of Lafarge's India assets that the French major is being forced to sell to conclude its mega global merger with Swiss cement company Holcim. These assets, located in eastern India, are expected to be valued at a billion dollar, people with knowledge of the matter said.
The three will be competing with Temasek, the Singapore government's investment arm, Heidelberg, the world's third-biggest cement maker and Baring Private Equity Asia, an existing investor in Lafarge India, in what could be a keenly competitive divestment exercise.
Last April, Holcim and Lafarge had announced a $44-billion alliance to create the world's largest cement company . After an initial wobble, the merger process started earlier this year but both had to sell assets from their global portfolio to receive regulatory approval for the merger. The Competition Commission of India (CCI) directed Lafarge to sell two of its assets as a precondition for giving a green light to the Indian leg of the transaction.
The two assets -grinding and cement plants in Jojobera in Jharkhand and Sonadih in Chhattisgarh -required to be sold have an annual cement capacity of around 5.2 million tones (MT). The combined LafargeHolcim will have a capacity of around 68 MT in India, largely on account of Holcim's sprawling operations through local arms, ACC and Ambuja.
Following the CCI directive, Lafarge had invited preliminary non-binding bids which came in last month. Last week, the top six were selected from a long and diverse list of 16 potential suitors which included Birla Corp, Emami, JSW Cement, Carlyle Private Equity and Ramco Cement. The shortlisted candidates will conduct a detailed diligence of the asset based on which they are to make binding offers after six weeks.
Most of the bids are believed to have come in the range of $850 million (Rs 5440 crore) to $900 million (Rs 5760 crore), with one touching the billion dollar mark, four of the people said. The Lafarge plants have clocked a $100-$120 million EBITDA on an average, said analysts tracking the sector. A CRH spokesperson declined to comment on what he termed as market speculation. Mails sent to Heidelberg did not get a response till the time of going to press. A Lafarge spokesperson said the company will not talk about the ongoing sale process. Baring Asia, Temasek, Apollo, Blackstone spokespersons also declined to comment on speculation.
Interestingly , the CCI directive barred the larger domestic players like UltraTech or Dalmia from joining the race.In its order, CCI said Lafarge should sell its assets "to relatively smaller players, having an installed capacity of less than 5% of their total capacity in the relevant geographic market."
Lafarge entered India in 1999 by buying the cement business of Tata Steel and consolidated its position in the east of the country.
For most foreign players unwilling to take the risk of putting up greenfield plants, the sale of the Lafarge assets is a great opportunity to scale up.
In February , CRH, in partnership with KKR, had already scooped up substantial chunk of the assets of its two larger rivals -Lafarge and Holcim -by agreeing to a $7.3-billion deal to significantly expand its business globally .
The Dublin-based firm, itself a product of a merger, agreed to buy production facilities in the Philippines, Canada, Brazil and countries in Europe after the top cement firms were mandated to trim their footprint and divest businesses with revenue of about ¤5 billion to ensure regulatory approval.
Blackstone Group, which had teamed up with Cinven, had lost out to CRH in the bid to buy these assets. Blackstone's bid, if successful, will be first investment outside the real estate sector in India in the last two years.
Baring Asia, which acquired 14% stake in the local subsidiary Lafarge India in 2013 for $265 million, is also in the fray even as the French multinational has agreed to buy them out from their existing two-year old investment.
Like CRH, Heidelberg too, is expanding its Indian presence. After entering India in 2006, it has remained largely a regional player focusing primarily on the central and northern markets of India. Parent Heidelberg Cement, which faced financial stress with the 2007 purchase of Hanson Plc, has managed to restructure its global operations.
Temasek and Apollo too, own or have investments in cement assets globally .
However, most expect the bidders to team up as consortiums in the upcoming rounds. Apollo may also co-invest with its partner Aion.
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