Semen Indonesia Snaps Up LafargeHolcim Unit to Bolster Market Lead
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Cement maker Semen Indonesia is buying the local unit of Swiss rival LafargeHolcim for around $917 million, as it seeks to extend its dominant position in Southeast Asia’s largest market. Semen Indonesia said in a statement it had signed a deal to acquire LafargeHolcim’s 80.6 percent stake in Holcim Indonesia, which is the third-biggest cement producer in the country.
A fully owned subsidiary of the state firm would launch a mandatory offer for the remaining shares owned by public shareholders, it said.
“In the competitive environment of the national cement industry, the combination between Semen Indonesia and Holcim will be stronger and larger,” Semen Indonesia president director Hendi Prio Santoso said.
The company said the acquisition will boost its total cement capacity to 53 metric tons per annum. Analysts say this will give the combined entity a total capacity share of about 50 percent, in a market that has 15 companies.
Sources familiar with the matter said Malaysian infrastructure company YTL Corp and privately owned Chinese firm Hongshi Cement had also been among the final bidders but the strategic fit with Semen Indonesia helped LafargeHolcim’s Indonesian unit to win the auction.
The initial round of the auction drew interest from about a dozen companies, including from Japan, the Philippines and other countries, the sources said.
YTL and Hongshi declined to comment.
A spokeswoman for LafargeHolcim said it had received strong interest from bidders for its Indonesian business but declined to give details on the parties involved.
Though President Joko “Jokowi” Widodo’s infrastructure push has fueled a boom in the building of airports, roads and housing projects, an aggressive expansion in the industry and entry of newer players such as Anhui Conch has created excess capacity and a price war in the last few years, analysts say.
“The company said the acquisition will boost its total cement capacity to 53 metric tons per annum.”
Semen Indonesia has secured financing from local, regional and international banks such as BNP Paribas, said the sources, who declined to be named as complete details of the deal have not been announced.
“This secures Semen Indonesia’s position as a market leader for many years. Cement prices are improving and there is significantly less new capacity coming,” one source said.
In an August report on potential consolidation in the Indonesian cement industry, Deutsche Bank analysts said: “A bull-case scenario would be that domestic consolidation reduces the number of players competing in the overcapacity market, supporting higher ASP [average selling prices] and a profitability recovery.”
“A bear-case scenario would be a prolonged condition in which the industry loses its pricing power due to the new players’ strategy to overtake market share,” the report said.
Semen Indonesia said the acquisition would give it significantly larger capacity and broader product portfolio and geographical footprint, while LafargeHolcim, the world’s largest cement maker, said in a separate statement that it was selling the business as it reviews its portfolio to improve its financial strength.
LafargeHolcim’s local unit has four cement plants with a capacity of 14.8 metric tons per annum and 30 ready-mix plants, Semen Indonesia said.
It was advised by BNP Paribas, while LafargeHolcim was advised by Citigroup.
Questions & Answers
Q.How much will Semen Indonesia's total cement capacity increase to after this acquisition?
How much will Semen Indonesia's total cement capacity increase to after this acquisition?
The acquisition will boost Semen Indonesia's total cement capacity to 53 metric tons per annum. This is achieved by adding LafargeHolcim's local unit's capacity of 14.8 metric tons per annum.
Q.Which other companies were among the final bidders for LafargeHolcim's Indonesian unit?
Which other companies were among the final bidders for LafargeHolcim's Indonesian unit?
Malaysian infrastructure company YTL Corp and privately owned Chinese firm Hongshi Cement were among the final bidders. Sources noted that the strategic fit with Semen Indonesia was a key factor in the decision.
Q.What is the reason LafargeHolcim is selling its Indonesian business?
What is the reason LafargeHolcim is selling its Indonesian business?
LafargeHolcim is selling the business as part of a review of its portfolio. The aim of this review is to improve the company's overall financial strength.
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