Italcementi’s Ciments Francais sees post-bid investments in Egypt
Italcementi SpA’s quoted unit Ciments Francais SA plans to invest to improve efficiency and logistics at its Egyptian affiliate Suez Cement after the planned takeover, according to Ciments Francais chairman Yves-Rene Nanot. Nanot was commenting in an interview in Milano Finanza Saturday, giving more detail on Ciments Francais’s recent bid of up to US$540m to acquire the 65.9 per cent shareholding it does not already own in Suez Cement from the Egyptian government.
Nanot said investments in efficiency and logistics will not have any impact on Suez Cement jobs, which will be kept at current levels for three years, assuming the bid is successful. Nanot said Ciments Francais has committed up to a maximum of US$290m for the bid. He said the bid consortium includes international investors in the Middle East and among these investors are the Egyptian/Saudi group Al Sewaidi. He said having local partners was a useful strategy.
Italcementi has been long interested in expanding its stake in Suez Cement – so the deal should come as no surprise. Italcementi originally took a 25 per cent stake in Suez in October 2001 and since then has increased its stake to 34 per cent.
The rest of the shareholder structure is as follows. State owned companies control 45 per cent. Torah Cement has a cross holding of seven per cent and the free float is 13 per cent (according to Deutsche Bank). The price offered implies an EV/EBITDA of 7.3x for 2004E compared to the cement sector on 6.0x.
Given the levels of profitability at Suez and potential for cement prices to improve further the bid price looks sound. In 2003 the company had an EBITDA margin of 38 per cent despite week prices. Since 2003 prices have improved from circa US$30 per tonne to an average of US$40 per tonne in Q3 04. On an EV/tonne basis the price offered looks more attractive at US$102 per tonne compared to US$192 for the Cemex/RMC deal and the cement sector average of US$125.
Suez Cement has a market share of 22 per cent. As far as the possibility of a Ciments Francais buy-out is concerned this deal in Egypt will put that eventual tie up further into the distance, in Deutsche Bank’s view. The Italian group states on a regular basis that it prefers to use its capital to expand into emerging markets rather than buy up minority positions in Ciments Francais and this latest move backs up its words.
