German cement giant draws offer

German cement giant draws offer
Published: 14 June 2005

A €6.5bn (US$7.9bn) bid for Germany’s largest cement maker looks destined for success amid a flurry of consolidation in the European construction materials segment, analysts say.

German billionaire Adolf Merckle, patriarch of a German family with interests in pharmaceuticals and construction materials, late Friday, June 10, uncovered a €60 per share offer for Heidelberg Cement AG that offers shareholders a 20 per cent premium to the group’s Friday close. Heidelberg declined to comment.

Although the bid came as a surprise, Merckle has been gradually increasing his influence in Heidelberg, where he and son Ludwig sit on the supervisory board and hold at least a 12.8 per cent stake. Two executives trusted by the family were appointed to the group’s management board in February — Bernd Scheifele as CEO and Lorenz Näger as CFO. Both came from Phoenix Pharmahandel AG & Co. KG, another Merckle family holding.

The bid is the latest in a string of mergers between major European cement and building materials suppliers that began with Lafarge SA’s US$7.2 bn buy of British Blue Circle Industries plc four years ago. Last year Mexico’s Cemex SA de CV paid £2.7bn (US$4.9bn) for Britain’s RMC Group plc and, earlier this year, Swiss Holcim Ltd. bought UK peer Aggregate Industries plc for £1.8bn.

Erhard Schmitt, an analyst with Helaba Trust in Frankfurt, said the recent management board changes as well as an increase by Heidelberg in its participation in Indonesian unit PT Indocement Tunggal Prakarsa may have been part of the takeover plans.

"Although a discount to rivals Lafarge and Holcim could be justified considering the company’s weaker participation in developing markets, this [bid] offers a premium," Schmitt said.

At just under 10, the Ebitda multiple appears in line with the Holcim offer and above the 7.9 multiple of the Cemex-RMC purchase.

Merckle is making the offer through Spohn Cement GmbH, a little-known supplier based in Norderfriedrichskoog, Germany. Although rumored to hold well over the 12.8 per cent attributed to him by Heidelberg, Merckle also indirectly controls another 22.48 per cent over Schwenk Zement KG, a cement group held by his wife’s family.

Perhaps best-known as the owner of the country’s most high-profile generic drug maker, Ratiopharm GmbH, Merckle is also a major shareholder in Kässbohrer Geländefahrzeug AG, a maker of tracked vehicles for grooming ski runs and back country winter transport.

Heidelberg refused to comment until regulators have approved the bid and wouldn’t release advisers. Spohn Cement couldn’t be reach to comment.

The news ignited Heidelberg shares, sending them 19 per cent higher to €59.77, nearly the level of Merckle’s bid. Before Monday’s gain the shares had gained about 18 per cent as investors bet the new management would get the company back on track after its first loss in 50 years.

Based in the town that shares its name, Heidelberg last year lost €333m on sales of nearly €7bn. The group employs 42,000 and makes concrete and cement as well as related building materials such as bricks and drywall sheets.

Insurer Allianz AG, which has been steadily reducing its industrial investments, holds 4.6 per cent of Heidelberg.