GENEVA -- Swiss cement group Holcim (IW 1000/198) and French rival Lafarge (IW 1000/220) are merging to create the world's biggest concrete group worth 40 billion euros, with an eye to booming construction in emerging markets, the companies said Monday.
The deal, a major event in the global construction industry described in a joint statement as "a merger of equals," will be based on the offer of one Holcim share for one Lafarge share.
The two groups together have a stock market value of 40 billion euros ($55 billion), Holcim chairman Rolf Soiron said.
The companies made a commitment to sell assets to pre-empt anti-trust objections from competition authorities.
Soiron said these disposals would account for annual sales of 5.0 billion euros, two thirds of which would occur in Europe.
Lafarge assured that the deal would not lead directly to plant closures, with a French minister warning that the government would scrutinize the merger's impact on investment and jobs.
Shares in both Holcim and Lafarge jumped more than 3% as news of the deal broke, after already rising sharply on Friday on merger rumors.
The new company will be called LafargeHolcim and "will have a unique position in 90 countries and will be evenly balanced between developing countries and countries with strong growth," the companies said in a joint statement.
They highlighted the match of their activities since Lafarge has a strong presence in Africa and Holcim in Latin America.
However, they both have big and competing interests in Europe.
In Zurich, stock analyst Ute Haibach at brokers J. Safra Sarasin said the deal should result in "more balanced exposure in emerging markets."
At stock brokers Aurel BGC in Paris, analysts said that the merger would be "long and complex but was technically possible."
Natixis analyst Abdelkader Benchiha said, "Lafarge and Holcim are so big they wouldn't get involved in such a merger project" without being convinced they can obtain the green light from regulators.
Figures in the statement show that the new giant will employ 136,000 people, have annual sales of 32 billion euros and underlying profits of 6.5 billion euros.
The deal would generate economies of scale of 1.4 billion euros over three years.
LafargeHolcim will be in a powerful position as a supplier of cement for concrete, a key material in the construction of buildings and infrastructure.
Building supply companies have been expanding in emerging countries where they see huge opportunities for growth as they face sluggish conditions in the European construction industry.
Creating 'The Most Advanced Group'
The combined group would be "uniquely positioned to take advantage of growth in developed markets and the world's fastest-growing economies," Soiron said.
Lafarge chief executive Bruno Lafont said the merger would "set up the most advanced group in the construction industry, for the benefit of our clients, our employees and our shareholders."
The new firm's chairman will be Holcim's Wolfgang Reitzle, with Lafarge's Lafont becoming its CEO. Holcim and Lafarge will each have seven seats on the new firm's board.
The headquarters of the company will be in Switzerland, but Lafont told the press conference that the new entity would not pull out of France, where the downsizing of industrial companies is a hot political issue.
Economy Minister Arnaud Montebourg said the government will be "very vigilant about what advantages France can get [from the merger], on keeping up the level of investment in France at the absolute preservation of jobs."
Switzerland's Holcim and France's Lafarge are in merger talks that could create a global concrete titan pic.twitter.com/kfvTQ0vxbp— WSJ News Graphics (@WSJGraphics) April 6, 2014
The companies are aiming to complete the deal by the first quarter of 2015. Shares in the new company will be listed on stock exchanges in Paris and Zurich.
Founded in Switzerland in 1912, Holcim employs 71,000 people, with production sites in about 70 countries. It reported net sales of 19.7 billion Swiss francs (16.1 billion euros, $22.2 billion) in 2013.
Lafarge began as a French limestone-quarrying company in 1833, and now employs 65,000 people in 64 countries, with annual sales of 15.8 billion euros ($21.7 billion).
In Paris, Lafarge shares ended the day up 2.6% at 65.7 euros, while the CAC 40 ended down 1.1%. Holcim shares rose 1.6% to 81.50 francs while the broader Swiss SMI index gave up 1.2%.
Copyright Agence France-Presse, 2014