for-phone-onlyfor-tablet-portrait-upfor-tablet-landscape-upfor-desktop-upfor-wide-desktop-up

UPDATE 3-HeidelbergCement returns to market with Italcementi buy

* Heidelberg to pay 1.67 bln eur for 45 pct stake

* Will make offer for remaining shares after close of deal

* Gives HeidelbergCement access to growing markets

* HeidelbergCement ups medium-term targets (Adds CEO comment, details from conference call)

By Georgina Prodhan and Francesca Landini

FRANKFURT/MILAN, July 28 (Reuters) - HeidelbergCement agreed to buy control of Italcementi in a deal that values its smaller Italian rival at 6.7 billion euros ($7.4 billion), less than three weeks after Holcim and Lafarge completed their $44 billion cement mega-merger.

The German cement maker, which said as recently as last month it would be disciplined about acquisitions and focus on returning cash to shareholders, said the chance to buy at the bottom of the cycle in recovering southern Europe was too good to pass up.

“The saying is there are no cheap assets in this industry. There are, and I think we have found some of them,” Chief Executive Bernd Scheifele told analysts on a call on Tuesday.

HeidelbergCement, returning to the market after years, said it would make a mandatory offer for the rest of Italcementi provided its 1.67 billion-euro cash-and-shares bid for a 45 percent stake went through as planned in 2016.

HeidelbergCement will pay top Italcementi shareholder Italmobiliare the equivalent of 10.60 euros per share, a 61 percent premium to Italcementi’s Monday closing price.

Italmobiliare will get 4-5 percent of HeidelbergCement as part of the deal, financed by a new share issue by the German company of up to 10.5 million new shares, or around 4 percent of its existing share capital.

HeidelbergCement said it stuck to the commitments it made last month about shareholder payouts, and would easily remain below its target leverage ceiling of 2.5 times core earnings by the end of 2016.

It said the 7.9 times earnings before interest, tax, depreciation and amortisation (EBITDA) it was paying was “fair”. That compares with a valuation of 6.7 times forward EBITDA for HeidelbergCement itself, according to Thomson Reuters data.

HeidelbergCement said the acquisition cost compared favourably with what it could gain by investing the same capital in its own business, and that it could achieve synergies of at least 175 million euros a year by 2018.

HAMSTRUNG

The German company has sat on the sidelines of industry consolidation since its ill-timed 2007 acquisition of Britain’s Hanson for 8 billion pounds ($12.5 billion), which left it weighed down by debt just as the global financial crisis struck.

HeidelbergCement said the combination with the Italian company would give it access to new markets in Egypt, Morocco and Thailand. It will bring Italcementi into a larger group and reduce its dependence on Italy, France and Morocco.

Italcement, founded 151 years ago, is in more than 20 countries and is market leader in Egypt. It has gone through a heavy restructuring and after years of losses analysts expect it to return to a net profit this year.

HeidelbergCement, which also released better than expected second-quarter results on Tuesday, increased its 2019 targets as a result of the deal.

The price for the 45 percent stake will be partly paid by the new shares plus financing from a bridge loan of 4.4 billion euros from a consortium led by Morgan Stanley and Deutsche Bank.

Italcementi, which is controlled by Italy’s Pesenti family, has a market capitalisation of 2.3 billion euros, against HeidelbergCement’s 13.3 billion euros.

With an annual production capacity of more than 60 million tonnes and 46 cement plants, Italcementi is the world’s fifth-largest cement producer, according to its website.

The deal is not expected to run into major antitrust issues, though Scheifele said HeidelbergCement would have to sell one plant in Belgium and two in the United States.

Mediobanca was adviser for Italcementi and Morgan Stanley for HeidelbergCement. ($1 = 0.9051 euros) ($1 = 0.6408 pounds) (Reporting by Arno Schuetze, Francesca Landini, Claudia Cristoferi, Paola Arosio and Georgina Prodhan; Additional reporting by Ilona Wissenbach; Writing by Victoria Bryan and Georgina Prodhan; Editing by Susan Thomas and Bernard Orr)

for-phone-onlyfor-tablet-portrait-upfor-tablet-landscape-upfor-desktop-upfor-wide-desktop-up