Holcim and Cemex to exchange, combine assets in Europe

ZURICH Wed Aug 28, 2013 11:25am EDT

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ZURICH (Reuters) - Swiss cement maker Holcim (HOLN.VX) plans to exchange some assets and combine others with Mexican rival Cemex (CMXCPO.MX) (CX.N) in Europe, seeking cost savings in response to tough conditions in the construction sector.

Holcim said it would boost operating profit by as much as 30 million euros ($40.18 million) as a result of the deal. It will pay Cemex 70 million euros in cash, mainly reflecting the size and value of Cemex's German business, which includes some 100 readymix and other plants.

Holcim will acquire Cemex's operations in western Germany, while Cemex will take over Holcim's operations in the Czech Republic. The two companies will combine their operations in Spain, with Holcim taking a 25 percent stake in the combined entity.

Holcim Chief Executive Bernard Fontana has already closed plants, cut costs and slashed capacity to try to boost profitability. The deal with Cemex shows he is ready to take further steps to address overcapacity and seek cost savings.

Fontana said the company would be open to further deals.

"I ... believe we have more opportunities to go on this way, and if other parties want to do it we will continue," he told a conference call.

Cemex shares rose 1.07 percent to 15.10 pesos in morning trading, while shares of Holcim, which have fallen 10 percent since the middle of August, were down 1.77 percent at 63.85 Swiss francs.

Cemex, one of the world's biggest cement companies, has struggled amid the global economic downturn and a heavy debt load from costly acquisitions. It was hurt by the 2008 U.S. housing meltdown shortly after paying out $16 billion to buy Australian peer Rinker.

Last month it posted a narrower second-quarter loss, helped by a slight increase in sales and core profit. Sales rose in the United States, Asia and South and Central America, but Northern Europe remained sluggish.

Europe historically accounts for about a third of Cemex's annual revenues.

Cemex said the transactions with Holcim were not yet final as the companies await approval from competition authorities and creditors.

Cemex executives said on a call that their legal team did not expect any regulatory problems.

"When it is finalized, this will be an important strategic step that should allow Cemex to improve its footprint in Europe and consolidate our portfolio in the continent," Cemex CEO Lorenzo Zambrano said in a statement filed with the Mexican stock exchange on Wednesday.

"These strategic transactions show Cemex's commitment to create value and return on capital," Zambrano said later on Twitter.

Analyst Christian Arnold at private bank Vontobel said Holcim was in the best position to benefit from asset swaps in the industry as it has the most financial flexibility and the highest credit rating among its peers.

"However, this transaction has a smaller impact on Holcim's earnings than the current currency weaknesses in emerging markets in the short term," said Arnold, who has a "hold" rating on the stock.

Holcim is rated BBB by ratings agency Fitch, compared with BB+ for rivals Lafarge (LAFP.PA) and HeidelbergCement (HEIG.DE) and B+ for Cemex.

Holcim said it had not yet made any final decisions on the number of job cuts envisaged as a result of the deal.

The transaction is expected to close in the fourth quarter, subject to approval from authorities.

Earlier this month, Holcim reined in its full-year profit forecast due to a slowdown in India, its biggest market. It said it should achieve underlying growth in core earnings this year, having previously forecast "significant" growth.

($1 = 0.7466 euros)

(Additional reporting by David Alire Garcia in Mexico City; Editing by David Cowell, David Holmes, Simon Gardner and John Wallace)

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