Lafarge to buy Orascom Cement
PARIS/CAIRO (Reuters) - Lafarge (LAFP.PA) has agreed to buy Orascom Cement for 8.8 billion euros ($12.8 billion) to boost its exposure to high-growth emerging markets, where the French cement giant expects to make two thirds of its earnings.
The deal will result in savings of more than 150 million euros a year by 2010 and give Lafarge a leading position in the Mediterranean region and the Middle East, where oil and gas revenues have fuelled a boom in construction.
Nassef Sawiris, the majority shareholder of Orascom Cement's parent company, Egypt's Orascom Construction Industries (OCI) (OCIC.CA) (OCICq.L), will buy an 11.4 percent stake in Lafarge (LAFP.PA) at 125 euros a share, the groups said on Monday.
This represents a 16 percent premium to Lafarge's closing share price on Friday. Orascom will also get two seats on Lafarge's board.
"This is an excellent deal for Lafarge," Deutsche Bank analyst Imran Akram said, while investment bank Natixis raised its rating on Lafarge to "buy" from "add".
Lafarge shares closed 13.2 percent higher at 121.84 euros, their highest level since early August. Orascom shares reached an all-time high of 600 Egyptian pounds before retreating around 5 percent to 520 pounds.
"What is pleasing for investors is the fact that Lafarge is getting access to markets with a strong growth potential," said Stratege Finance fund manager Jacques Tissier, who holds Lafarge shares in his portfolio.
Another analyst said that Lafarge's financing of the deal was good, with the Sawiris reinvesting more than half of the proceeds back into Lafarge, and paying a premium to the Lafarge share price.
Analysts also welcomed news that Groupe Bruxelles Lambert (GBLB.BR), the investment company of billionaire Albert Frere and Lafarge's biggest shareholder, will also join Lafarge's board of directors. Lafarge said GBL would have three seats.
Lafarge will finance the acquisition with 6 billion euros of debt, underwritten by BNP Paribas, Calyon and Morgan Stanley, said a source familiar with the matter. Lafarge will also assume 1.4 billion euros of Orascom's debt as part of the deal.
It will also raise 2.8 billion euros in equity by issuing 22.5 million new Lafarge shares to Sawiris.
LAFARGE RAISES FINANCIAL TARGETS
Lafarge said the purchase price represents a multiple of 11.6 times Orascom Cement's 2008 earnings before interest, tax, depreciation and amortization (EBITDA), and 10.3 times 2009 EBITDA. Analysts said these multiples were comparable to recent deals by Lafarge's Swiss rival Holcim (HOLN.VX) in India.
"Our group will be stronger and more profitable while keeping a healthy financial structure at the same time," Lafarge Chief Executive Bruno Lafont told a press conference.
Lafont raised Lafarge's financial targets as a result of this acquisition, saying he now expected earnings per share of more than 15 euros, a return on capital employed exceeding 12 percent and free cash flow above 3.5 billion euros in 2010.
He said the Orascom Cement deal, which Lafarge expects to complete at the start of in the second quarter of 2008, would be accretive to its earnings per share from the first year onwards.
It will also enhance Lafarge's presence in booming emerging markets.
"65 percent of our profits will be made in emerging markets by 2010, against 45 percent now," Lafont said, adding demand for cement in emerging countries "had never been stronger." He said
Lafarge will lift its cement production capacities to 260 million tons in 2010 from 170 million in 2006.
Lafont said Lafarge could make further acquisitions in emerging markets, and that it planned a number of asset sales for a total of 1 billion euros over the next two years.
Lafont declined to say whether Lafarge was still seriously looking at the possible acquisition of UK building materials firm Tarmac (AAL.L).
"I have said we're looking at all options but we're simply not ready to spend 5 billion euros on it (Tarmac deal)," Lafont told Reuters on the sidelines of the press conference.
Lafont also excluded plans to take over Orascom Cement's parent company OCI. "We have no intention to diversify our activity so we have no plan to buy the rest of OCI," he said.
Egyptian construction billionaire Sawiris told a conference call that OCI would return approximately $11 billion of the proceeds of the sale to its shareholders.
He said OCI would continue developing its construction operations and investments in infrastructure and natural gas.