* 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 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.
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
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