HeidelbergCement aims to sell building products business this year

Tue Jul 1, 2014 10:15am EDT

* Assets could be worth at least 1 bln euros

* BofA, Deutsche, BNP being hired for divestment - sources

By Marilyn Gerlach and Arno Schuetze

FRANKFURT, July 1 (Reuters) - HeidelbergCement aims to offload its U.S. and British building products business this year to have the best chance of buying cement assets that Lafarge and Holcim must sell when they merge, a source with knowledge of the company's plan said.

HeidelbergCement had said it can wait to get the best price for the business in the U.S. and Britain, which makes mainly bricks, concrete pipes and roofing tiles and is worth at least 1 billion euros ($1.36 billion).

But its bigger rivals Lafarge and Holcim have committed to shed around 5 billion euros of assets to secure a green light from competition authorities for their tie-up and are likely to push through the divestments next year.

HeidelbergCement's stated priority is debt reduction but it has also hinted it may seize opportunities to snap up assets.

"The Lafarge-Holcim merger could speed up Heidelberg's asset disposal plans because Heidelberg would then be able to use its proceeds to buy some of the stuff that Lafarge-Holcim will divest," the source said.

Heidelberg is likely to sell the building materials business by the end of the year, the source added.

An analyst who follows the company said he believed HeidelbergCement would use no more than 500 million euros of the divestment proceeds for acquisitions because its main goal was still to relieve its debt burden.

Moody's and Fitch have a rating of Ba1 and BB+ on HeidelbergCement's debt. The company missed its debt reduction targets last year partly because it needed to pay a 161 million euro German cartel fine. Its net debt at the end of 2013 was 7.523 billion euros, up from 7.047 billion a year earlier.

"I could imagine Heidelberg would use the proceeds to acquire interesting assets from Lafarge-Holcim, but I don't think it would use all of it because they've always said they wanted to get back to an investment-grade rating," said the analyst, who did not want to be identified.

HeidelbergCement is in the process of hiring Bank of America Merrill Lynch, Deutsche Bank and BNP Paribas to help with what will probably be a trade sale of the building products business, although a possible flotation was also being pursued, two people familiar with the situation said.

Some sources aware of the matter said HeidelbergCement had begun to separate the UK and U.S. assets from the rest of its building products division. One said the company was establishing the accounts of the assets up for sale using U.S. GAAP accounting rules.

A spokesman for HeidelbergCement declined to comment.

POTENTIAL BUYERS

Apart from private equity funds, potential industrial buyers may include U.S.-based Acme Brick Company, owned by Warren Buffet's holding Berkshire Hathaway, Australian building products company Boral, as well as European players such as Austrian brick maker Wienerberger.

A spokeswoman for Wienerberger declined to comment beyond saying: "We look at everything in the market that concerns our core business".

Boral declined to comment and Berkshire Hathaway could not immediately be reached.

Analysts estimate the assets for disposal make an annual profit before interest, tax and amortization (EBITDA) of around $120-150 million. HeidelbergCement said their annual revenue is around 1 billion euros.

Chief Executive Bernd Scheifele told analysts this year that the assets may be worth 10-11 times EBITDA, or up to $1.65 billion, based on a similar deal between U.S. private equity firm Lone Star and Lafarge last year, according to a second analyst who also wanted to remain anonymous.

Heidelberg's building products arm was acquired from Hanson Plc in 2007. The German company held onto the assets until the U.S. and UK housing markets recovered.

Some analysts questioned whether the business can really fetch the kind of price mentioned by CEO Scheifele.

"There's no doubt there's recovery potential in the earnings of the building materials businesses in the UK and the U.S, where you've got growing markets. But when you get 10-11 times EBITDA, you're pricing in quite a lot of growth," said Sanford Bernstein analyst Phil Roseberg.

He said businesses in which EBITDA is growing by 5 percent a year were likely to command a multiple of 8 times. ($1 = 0.7345 Euros) (Additional reporting by Soyoung Kim in New York, Alexander Huebner in Frankfurt, Ilona Wissenbach in Stuttgart, Georgina Prodhan in Vienna and Byron Kaye in Sydney; editing by Tom Pfeiffer)