HeidelbergCement’s approach to RMC
There is nothing to suggest that the HeidelbergCement management’s intense dislike for RMC has changed and the proposed offer to the British-based group to buy its German assets, which it, or its advisers, probably leaked to the press, is unlikely be generous and we would not expect it to succeed. With cement prices having started to recover in a meaningful way and the bottom of the demand cycle probably fairly close, one would not expect RMC Group to be prepared to sell its German operations. Readymix AG is the German market leader in ready-mixed concrete and number two nationally in aggregates behind Basalt AG as well as having strong positions in the cement markets of North-Rhine Westphalia and in Brandenburg/Berlin. Sales from the six cement plants that have a combined annual capacity of 6.4m tonnes produced 4.5m tonnes of cement last year. Given the financial commitments already entered into by HeidelbergCement, notably Indocement and the deferred payment on the cash element of the purchase of Anneliese Zementwerke, is likely to find it difficult to finance a €750m plus acquisition as its gearing level is high and the appetite for yet more HeidelbergCement shares must be limited. Unlike some of its recent German deals, the Heidelberg-based group will not be able to pay for this one by issuing its own paper to the vendors.
The Federal Cartel Office may prove to be an insurmountable obstacle, even should terms be agreed, given HeidelbergCement’s ownership of Anneliese Zementwerke and the ownership of a grinding mill in the Berlin area is not helpful either, but that could probably be overcome by a sale. Westphalia is where the problem lies. While the Westphalian market remains highly fragmented, the Cartel Office does no appear likely to condone any merger between two of the big three there, which are Dyckerhoff, Readymix and Anneliese Zementwerke, over 90% in the hands of HeidelbergCement. The now Bonn-based authority has in the past blocked such attempts. In a marginal case, any decision is likely to go against HeidelbergCement, given that it has rarely been in the Cartel Office’s good books. If the Readymix cement business were to be sold, it would probably have to be to Holcim or Lafarge or some outside party in order to receive the Cartel Office’s blessing. In short, anyone could buy it other than Buzzi-Dyckerhoff or HeidelbergCement.