Workers load sacks of cement at PT Holcim Indonesia's distribution center in Tanggerang.
Holcim Ltd. and Lafarge SA, the world’s two largest cement makers, are exploring a merger to create a Swiss-French company with a market value of more than $50 billion, according to people familiar with the matter.
The discussions are ongoing and may lead to a merger of equals, the people said, asking not to be identified as the discussions are not public. Jona, Switzerland-based Holcim and Paris-based Lafarge declined to comment. The talks are at an early stage and could still fall apart, especially due to antitrust concerns, the people said.
Lafarge shares rose as much as 9.7 percent in Paris trading while Holcim gained as much as 5.9 percent in Zurich.
A deal would allow the cement producers to cut costs by combining their production operations and reducing over-capacities in markets worldwide. Some of the industry’s kilns are running at a loss after the recent global recession eroded demand for building materials. To improve returns from energy-gobbling plants, Holcim in August already agreed to swap assets in Germany and the Czech Republic with Cemex SAB, the biggest cement maker in the Americas.
Holcim and Lafarge entered the global financial crisis saddled with debt following major acquisitions. Lafarge bought Orascom Cement for 10.2 billion euros ($14 billion) in 2008 while Holcim paid $4.1 billion for Aggregate Industries in 2005.
The acquisition spree widened the global scope of both companies and Holcim today employs 71,000 people in about 70 countries while Lafarge has about 65,000 workers in 64 markets.
A deal may face opposition from antitrust regulators. Following Holcim’s asset swap deal with Cemex, the European Union started an in-depth probe after regulators said the deal may substantially reduce competition.
Holcim Chief Executive Officer Bernard Fontana became the first outsider to lead Holcim when he joined the Swiss company in February 2012. Drawing on his past experience of overhauling steelmaker Aperam, the French national has embarked on a similar cost-cutting program, using the same “Leadership Journey” label he employed in his prior post.
At Lafarge, CEO Bruno Lafont has been slashing expenditure, pushing sales of higher-margin services and selling assets to repair a credit rating that has fallen one level below investment grade amid a slump in European construction and rising energy prices.
Both companies said earlier this year that demand for their offerings is improving amid a global economic recovery. Holcim in February forecast improved cement shipments this year. The same month, Lafarge reported earnings that beat analyst estimates and also predicted rising demand.