The world’s two largest cement companies, Lafarge and Holcim, say they are in advanced discussions on a “merger of equals” to create a global powerhouse with $47 billion of annual sales.
“Holcim and Lafarge believe that, given the strong complementarity of their portfolio and the cultural proximity between the two companies, there is rationale in considering a potential merger that could deliver significant benefits to customers, employees and shareholders,” the companies said in separate statements Friday.
The news sent their respective shares up about seven and nine per cent in trading in Zurich and Paris.
The Swiss and France-based companies said there is no assurance that the discussions will lead to a definitive agreement.
Together they earned $3.14 billion of profits last year, including $2.5 billion attributable to shareholders, and employed more than 134,000 people around the world, including Canada.
Lafarge is partially owned by a subsidiary of Power Corp. (TSX:POW), whose chairman and co-CEO, Paul Desmarais Jr., is a member of the Lafarge board of directors.
Last year, it earned $1.17 billion on $22.8 billion of sales. Holcim says it earned $1.96 billion on $24 billion of net sales in 2013.
Each is saddled with more than $13 billion of debt that was increased from acquisitions.
They have been cutting costs and reducing debt as they’ve faced the negative fallout from the global economic slowdown.
But the companies said in annual reports that the longer term prospects are tied to economic recovery and growing urbanization.
“Markets shall increasingly benefit from the recovery in the United States and the continuing growth in emerging markets as Europe overall stabilizes,” said Lafarge, which sees cement demand growing by two to five per cent in 2014.
The merger is likely to attract the concerns of competition regulators because of the dominant position the company would have. Lafarge alone says it has a cement market share of 33 per cent in Canada, 12 per cent in the U.S., 40 per cent in the U.K., and 34 per cent in France.
Laforge entered North America in 1956 by building a cement plant in Richmond, B.C. It employs more than 6,000 employees at six plants that have the capacity to produce 5.8 million tonnes of cement annually.
Holcim employs nearly 2,900 workers at four facilities, including two cement plants in Quebec and Mississauga, Ont.
The company said the Canadian operations sold less cement and aggregates last year because of challenging market conditions.