Camargo Corrêa in Cimpor bid

Camargo Corrêa in Cimpor bid
Published: 06 April 2012


Camargo Corrêa and Brazilian competitor Votorantim Cimentos SA bought separate stakes in Cimpor in early 2010. Camargo currently claims to hold around a 33.25% stake in Cimpor and is its largest shareholder ahead of Votorantim with a current 21.2% interest, but has an option to increase this to 30.8%. Votorantim is reportedly considering teaming up with Camargo for a joint bid, although the latter denies that any such agreement has been made. Given Votorantim’s dominant market share in Brazil, it is unlikely to be allowed to buy Cimpor’s interests it may well insist on acquiring some of Cimpor’s operations in other countries as its price for accepting the Camargo bid.

Portuguese state-owned bank Caixa Geral de Depositos SA said in a separate statement on 30 March it would sell its 9.6% stake to Camargo Corrêa, provided Caixa and Votorantim agree to end a shareholders’ accord, which gives each party the right of first refusal to buy the other’s stake.

Camargo said that, in addition to gaining control of Cimpor, it is seeking to create “a coherent and stable shareholder structure” in the company. It also plans to combine its South American and Angolan operations with Cimpor, which does business on four continents.

Camargo is actively involved in multiple businesses in the steel and construction industries and newly arrived in the cement sector. It is currently the sixth-largest cement producer in Brazil (almost 8Mta capacity), market leader in Argentina (7Mt) and is active in Paraguay, Bolivia and Angola. If the Cimpor deal proceeds, analysts at CM-CIC Securities note that Camargo would achieve a “truly global cement player status with capacity of 53Mt active in all major regions apart from the notable exceptions of North America.”

CM-CIC notes that Cimpor’s assets have three exceptional qualities in the eyes of potential buyers: very modern and efficient Portuguese plants of very high strategic value, Cimpor’s position in emerging markets (which now account for 72% of installed capacity) and on the whole, an efficient and coherent portfolio around the Mediterranean basin.

Cimpor has a present global cement capacity of 36.5Mta and last year sold 27.5Mt of cement and clinker in the dozen countries in which it trades, a YoY decline of 2.7%. Only in Portugal (7Mta) does Cimpor have a greater manufacturing capacity than it has in Brazil (6.6Mta) but the volumes sold were notably greater in Brazil. Last year, Cimpor’s Brazilian cement sales amounted to 5.63Mt compared to 3.7Mt in Portugal. Indeed, last year the group noted that Brazil continued to be the main growth driver in its portfolio. Cimpor is currently number four in Brazil and the tie-up with Camargo would result in the formation of Brazil’s second-largest cement producer, but still be less than a third of the size of domestic market leader, Votorantim.

Since the announcement, ratings agency Standard & Poor’s (S&P) has said that it has placed Cimpor’s ‘BBB’ rating on credit watch and could lower its ratings if Camargo achieves majority ownership. The current rating on Cimpor reflects S&P’s view that the cement producer will continue to report strong profitability and high margins, compared with other heavy materials groups. “This is supported by Cimpor’s strong presence in emerging markets and solid positions in low-cost, often highly consolidated, markets,” it notes. However, the agency states: “We anticipate that, in the event of a successful majority takeover, we would likely align our ratings on Cimpor with those on Camargo.

The extent of the downgrade will depend on our assessment of the effect of the acquisition on our ratings on Camargo. This is because we will likely cap the ratings on Cimpor at the level of the ratings on Camargo, in line with our criteria for rating parents and their subsidiaries.” S&P noted that it could remove the ratings on Cimpor from CreditWatch and affirm them if Camargo does not achieve ownership of a majority stake.