City celebrates Lafarge-Holcim merger, latest in rush of lucrative deals
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Version 0 of 1. City bankers are celebrating the return of a mergers and acquisitions boom with a deal announced on Monday to create a $40bn (£24bn) cement group taking total deals so far this year to $911bn. The proposed combination of Switzerland's Holcim with French rival Lafarge crowned the busiest start to the year since the heady pre-crash days of 2007. "The old days of M&A boom are back … and the City is celebrating," said Louise Cooper, an independent analyst. "M&A deals are very, very lucrative and have very big fees. Investment bankers are very happy that deals are back." Yesterday's deal is the second-biggest M&A transaction of the year so far and will create a global company with more than 136,000 employees in 90 countries. It caps a spectacular few weeks of global M&A deals as company directors finally begin to feel confident enough in the global economic recovery to spend large amounts of cash on takeovers. SFR, France's second-biggest mobile operator, agreed to be bought by European cable group Altice at the weekend in a deal worth $23.6bn. Other big deals this year include Comcast, the US media group, buying rival Time Warner Cable in a $45.2bn deal and Actavis's $25bn takeover of Dublin-based drug researcher Forest Laboratories. Monday's cement deal takes the total value of M&A announced this year to $911bn, according to Dealogic, the investment banking advisory service. It is the most money spent on deals between January and early April since 2007, when companies splashed out $1.25tn buying or merging with each otherthe figure reached $1.25tn. City analysts and economists reckon the recent flurry of activity could be the start of a stampede of M&A deals in the coming weeks as company bosses start to believe in the global economy recovery. Howard Archer, chief European and UK economist at IHS Economics, said: "It is certainly true that a brighter economic environment is likely to stimulate more mergers and acquisitions. Many healthy companies are likely to increasingly look to increase market share either through acquisitions or organic growth." Cooper said the high number of megadeals showed the "dark days" were over. "Companies are finally feeling a lot more confident on economic prospects. [They] are finally getting their chequebooks out," she said. "There is going to be a stampede by companies spending on M&A and investment. The contribution to GDP could be quite significant." The biggest immediate winners from the deals, however, will be City bankers. "[The deals] are clearly generating lots of money for investment bankers in the City," Cooper said. "But it's not just bankers, it's City lawyers and financial PRs too. They make a lot of money out of M&A." Goldman Sachs bankers will make the most from the cement deal if it clears a battery of regulatory hurdles. Goldman are the lead banker advisers to Holcim. Rothschild, Zaoui, Morgan Stanley and BNP Paribas are acting for Lafarge. The main PR advisers are RLM Finsbury and Brunswick in London and, in France, Havas and Image 7 in France. The deal, which combines the top two players in the cement world, is far from straightforward and will require regulatory clearance in at least 15 countries. Lafarge, Holcim and two other big cement companies are already subject to a European Commission investigation into allegations, which they deny, that they colluded to fix prices and block foreign imports. The Competition Commission in the UK is also looking into Lafarge's dominance of 40% of Britain's cement market. Bruno Lafont, the chief executive of Lafarge who will head the combined company, said he would "start discussions immediately with the European commission and other regulators". Analysts at UBS said the combined company, to be called LafargeHolcim, should expect the competition authorities in the UK, the US, Brazil, Canada, Ecuador, France, Morocco and the Philippines to launch investigations. "Given the number of potential issues and required remedies, we expect a lengthy approval process, possibly taking up to two years," UBS analysts said. Lafont said he hoped the companies' plans to sell €5bn (£4bn) of assets would appease regulators' concerns. Analysts at Deutsche Bank said LafargeHolcim would control more than 50% of the market in eight countries. The deal, which Lafont hoped would generate cost savings of €1.4bn, would not lead to mass job cuts and he promised "no plant closures associated with the deal". The merger, with resulting Swiss headquarters, is unlikely to be popular in France, where Lafarge has been based since its foundation in 1833. The corporate tax rate in St Gallen, the Swiss canton where Holcim is based, is 17.4% compared with 33.3% in France. Lafont said he had already discussed the deal with France's socialist government, which is highly sensitive to industrial mergers. The deal will big a moneyspinner for at least four billionaires who own big stakes in Lafarge or Holcim, including Egypt's richest person Nassef Sawiris, Belgium's Albert Frère, Switzerland's Thomas Schmidheiny and Georgia-born Filaret Galchev. |