Brazilian market adjustments

Brazilian market adjustments
Published: 16 July 2012


The recently-approved takeover of Cimpor by Brazilian conglomerate Camargo Correa will not only lead to the reorganisation of the Portuguese cement major's operations, but is also set to alter the make-up of the Brazilian cement market.
 
Last month, Camargo Correa succeeded in acquiring a controlling stake in Cimpor with a price tag of EUR2.5bn, raising its share from 33 to 94.8 per cent. Camargo is to integrate its South American and Angolan cement operations into Cimpor and according to a shareholders agreement, there will be a change of Cimpor's Corporate Governance. Camargo has already released a list of board members who will be elected at a general meeting. It has decided to keep seven of the current directors of Cimpor and appoint eight new members. Ricardo Lima, who is currently vice president of operations at Camargo's cement unit, InterCement, is set to be Cimpor's new CEO.
 
Camargo is also planning to swap most of Cimpor's non-Brazilian and Portuguese assets with Votorantim, currently Cimpor's second-largest shareholder. As part of the reorganisation, Votorantim will acquire control of Cimpor's operations in Turkey, Morocco, Tunisia, India and China and Spain, giving it an additional 15Mta of cement capacity, in exchange for ceding its 21.21 per cent stake in Cimpor. Votorantim said in a statement recently that it had bought its Cimpor stake to expand internationally, and that it was never its intention to remain a partner in Cimpor with Camargo Correa.
 
While Camargo said the strategy behind the Cimpor deal is the "continued internationalisation and diversification of its cement business," the acquisition will significantly strengthen the group's position in its domestic market of Brazil. Camargo is currently the country's third-largest cement producer with a 10 per cent market share and seven cement plants. Cimpor, meanwhile, has a market share of nine per cent and a 6.6Mta cement capacity, and with Brazil proving to be a driving force behind the company's growth in recent years, it is currently in the process of raising capacity to 10Mta by 2014.
 
Last week Brazil's competition regulator Cade granted approval to the deal, subject to conditions, the main requirement being that Votorantim sells its stake in Cimpor. Over the last couple of years, considerable consolidation in Brazil's cement and concrete markets has limited competition and kept pricing high. With 40 per cent of the Brazilian market, Votorantim is Brazil's largest cement producer and through the shareholdings acquired in Cimpor in 2010, both Camargo Correa and Votorantim increased their shares in the local market further. While it has less than half of Brazil's total market, in some states, Votorantim's market share is as high as 70 per cent. Cade has also said Carmargo Correa must sell some assets in the populous Brazilian state of Sao Paulo.
 
In the weeks since the agreement, Brazil, Latin America's largest economy, has seen its economic performance falter somewhat in the context of the global slowdown. Cement demand, nevertheless, appears to be holding firm as preliminary industry data shows that first-half 2012 sales increased 9.3 per cent YoY to reach 33Mt. Forecasts by Cimpor see consumption growing at six per cent this year, and as local producers race to ramp up capacity to retain or increase market share, Camargo's incorporation of Cimpor's Brazilian assets will play an important part in the company's strategy going forward.