THE purchase of LafargeHolcim by CSN Cimentos, announced yesterday, in a US$ 1.025 billion deal, will change the profile of the sector and open a fierce dispute for the second position in the national market. InterCement remains in second place, behind Votorantim Cimentos, but could at any time lose its position – as it is only slightly ahead of Benjamin Steinbruch’s company.
This is the second acquisition movement of the cement arm of the Steinbruch group in three months. In July, CSN Cimentos announced the purchase of Elizabeth Cimentos, which operates in the Northeast region, for R$ 1.08 billion. The acquisition added a production capacity for CSN Cimentos of 1.3 million tons per year, for a total of 6 million tons.
With the closing of the operation yesterday, CSN Cimentos will have a broader presence in the national territory. The purchase of the Brazilian operations of the Swiss LafargeHolcim was announced for the lowest value expected for the conclusion of the deal. The transaction includes the country’s five integrated cement production plants, four crushing stations and 19 concrete mixing units, among other assets.
According to industry sources, Votorantim Cimentos even considered the purchase, but did not proceed with the process, as it wanted to acquire only part of the company. The deal, then, was between CSN and Mizu. The operation came out for less than LafargeHolcim wanted, around R$ 1.5 billion, but the company did not give up on selling everything at once and ending its presence in Brazil.
The cement sector in Brazil went through a severe crisis between 2015 and 2018, with sales losses and plant closings. The sector is now experiencing a new reality, with the third consecutive year of growth: it grew 3.5% in 2019, 11% in 2020 and is expected to expand by 6% for this year.
“There is a market consolidation process, which we already knew would come from the players already installed in Brazil”, says the president of the National Cement Industry Union (Snic), Paulo Camillo Vargas Penna. According to him, the sector gains with the purchase of LafargeHolcim by CSN, a national company with investment capacity. “There is a huge perspective of growth as we have an infrastructure that starts to show signs of recovery.”
In the assessment of analysts Thiago Lofiego and Isabella Vasconcelos, from Bradesco BBI bank, the business may be affected by competition issues. According to them, antitrust drugs cannot be ruled out for approval of the purchase of LafargeHolcim by CSN Cimentos.
“Although CSN has only about 15% of the total installed capacity of the post-trade market, it is important to remember that cement is a highly regionalized market. Cade (Administrative Council for Economic Defense) could implement some kind of remedy in the region Southeast of Brazil, where the assets of CSN and LafargeHolcim are more concentrated”, they say.
The bank also says that the operation is a positive step for CSN, in line with the company’s strategy of expanding its presence in the national cement market through mergers and acquisitions. “CSN is currently in a solid financial position following record results. The payment of $1 billion in cash is unlikely to have a substantial impact on the company’s leverage,” comment Lofiego and Vasconcelos.
Given the positive scenario for the cement sector, Credit Suisse bank started to project a recommendation above the market average for CSN shares – with a potential increase of 82.7% compared to Thursday’s closing. Credit’s new target price for the paper is R$ 62.50.
The purchase of LafargeHolcim by CSN Cimentos makes room for a future launch of an IPO (initial offering of shares, in English) of the unit of Benjamin Steinbruch’s group, in the view of the analyst at Mirae Asset, Pedro Galdi. It’s an old intention: the public share offering would take place in July, but it was postponed due to increased volatility caused by the spread of the delta variant of the coronavirus and its impact on the economy. In addition, other companies in the sector have already had difficulties in going to the Stock Exchange in the past because of the long crisis that cement has faced in the country in recent years.
“CSN Cimentos is taking on an important dimension and I see this as a positive thing for when the window opens for the company’s IPO, later on,” he says. According to the analyst, the purchase of Lafarge is strategic, as CSN has substantially improved its capital structure with the proceeds from CSN Mineração’s IPO.