Lafarge combination of African units rivals Dangote Cement
Lafarge SA, the French cement maker that plans to merge with Holcim Limited of Switzerland to become the world’s biggest producer of the building material, will combine Nigerian and South African assets to form a new company to compete with Africa market leader Dangote Cement plc.
The entity will be known as Lafarge Africa plc and be listed on the Nigerian Stock Exchange, the Paris-based company said in a statement recently.
The business will have cement production capacity of 12 million metric tons and had combined revenue of $1.25 billion in 2013.
The deal “is aimed at responding to its more aggressive rival, Dangote Cement, and to consolidate its positioning as a leading cement firm,” Tunde Abidoye, an analyst at Lagos-based FBN Capital, said.
While synergies may be modest, the company will gain production capacity and market share in the continent’s two biggest economies, he said.
Lafarge, which has operations in 64 countries, has been adding capacity in Africa to take advantage of the need for new infrastructure in developing economies and to offset a construction slump in Europe.
The company is competing against Lagos-based Dangote Cement, which is expanding across the continent, as well as Johannesburg-based PPC Ltd., which is also trying to boost revenue outside its domestic market.
“It will boost their profile, strengthen their capacity and pricing on the Nigeria market, unlike when it was like a fringe player in different African markets,” Mike Nwanolue, an analyst at Lagos-based Greenwich Trust Group Limited, said.
“Dangote Cement got a lot of attention in the continent with acquisitions, which enabled it to source funds and build capacity. Some of that attention will now be shifted to Lafarge Africa and competition deepened,” he said.
Dangote Cement, controlled by Africa’s richest man – Aliko Dangote, plans to have capacity of more than 60 million tons in 2016. PPC plans to boost production to 14 million tons by the end of 2017.
Lafarge is at loggerheads with Nigerian regulators after its preferred 32.5 grade cement was deemed unsafe for anything other than plastering. Only 42.5 grade cement – a market controlled by Dangote – may be used for columns and slabs, the Standards Organisation of Nigeria said last month. There are several impending court actions challenging the ruling, Lafarge said June 2.