Despite announcing $ 7.3 billion divestment plan to Irish CRH, the global merger of Swiss cement maker Holcim and its French counterpart Lafarge is far from over as far as India is concerned. Indian anti-trust regulator Competition Commission of India is scrutinising if their merger can create monopoly of the new entity, especially in the eastern part of the country.
In April last year both the companies announced their global merger to create world’s largest cement maker which could have had combined capacity of 427 million tonnes, ahead of the China’s Anhui Conch currently having the largest about 227 million tonne. This raised eyebrows of anti-trust watchdogs in several countries. On Monday both the companies announced that to overcome the regulatory hurdles they would sell assets in Europe, Canada, Brazil and the Philippines which generated about 5.2 billion euros in revenue and 744 million euros in earnings last year to CRH.
“Holcim-Lafarge deal has competition concerns as evidenced by the CCI seeking objections from affected persons under section 29(2) of the Competition Act,” says Amitabh Kumar, partner at corporate law firm J Sagar Associates.
Holcim has 60 million tonne capacity in India through its control of Ambuja Cements and ACC in the country. Lafarge on the other hand has 11 million tonne capacity in the country out of which 7.8 million tonne (70 per cent) is in eastern states of Chhatisgarh, Jharkhand and West Bengal. Holcim’s ACC and Ambuja have capacities of 6.1 million tonne and 4.6 million tonne in this region, respectively. The merger will take the new company’s capacity to 18.5 million tonne, which is over 40 per cent of the estimated 46 million tonnes of total capacity in the region, according to information collated by a domestic brokerage. This has raised the eyebrows of Indian anti-trust regulator the Competition Commission of India.
However, this does not mean that the deal will not be approved. Conditional approval, as in the Sun-Ranbaxy deal, is a distinct possibility. “The conditions imposed will depend on the market definition adopted by the agency, which may ask for divestiture if the markets are defined narrowly based on geographies,” says Kumar from J Sagar Associates.
That cement is under scrutiny is clear. In June 2012, CCI imposed a penalty of Rs 6,307 crore on 11 leading cement makers for forming a cartel to charge higher prices from consumers. The cement companies moved the Competition Appellate Tribunal which asked them to deposit 10 per cent of the penalty while the hearing went on. The Supreme Court had declined to interfere with the tribunal’s order. The hearing with the CCI for 11 companies still continues.
“Should there be any need to make additional divestments in any jurisdiction where regulatory approval is still pending, those divestments will be dealt with in a separate process,” said a Holcim’s spokesperson in response to the newspaper’s query. This means that there could be a separate bidding for such assets in India if they come up for sale. Billionaire Kumar Mangalam Birla promoted UltraTech has sounded of investment bankers of its interest in such assets. The global giants expect to complete their merger by June this year. Holcim said that their “dialogue with the regulatory body (CCI) is ongoing.”
“The only problem the Indian merger will be in the eastern India where Lafarge may have to shed about 2-3 million tonne of capacities. If it is done, I do not think CCI will be a hurdle for the merger and it can get the approval,” says Piyush Jain, equity research analyst at Morningstar India.