Lafarge and Orascom

Having seen what some of my editor colleagues write when they put pen to paper one is reminded of the old adage: silence is golden, but let's throw caution to the winds and see what is stirring in the cement mix this week.

I remain puzzled by the speed at which the Lafarge - Orascom deal has been concluded. As I write this blog on the 23rd January, another news release from Lafarge drops on my desk to announce that Lafarge now owns 100 per cent of Egyptian-based Orascom Cement; while only last week, Lafarge shareholders were falling over themselves to vote for a new shareholding structure that gives Nassef Sawaris, one of the Orascom family brothers, a sizeable 11.4 per cent stake in what is now the world's largest cement and building materials group in return for a spend of Euro 2.8 billion.

In fact, this purchase is really a hand-back of part of the Euro 8.8 billion that Lafarge has just gifted Orascom shareholders, 60 per cent of which was owned by the Sawaris family. How do they get these valuations? If one takes into account the minority interests in Orascom, particularly the Holcim holdings, Lafarge seems to have paid well over US$350 per tonne of capacity, and some of it still only half built. Quite steep even in today's buoyant markets.

But on the plus side Lafarge has clearly scored a triumph in Algeria, with Orascom's upgraded 5Mta works in the south, plus a new coastal plant of about 2.5Mta just about to come on-stream (most likely an excellent export facility into Europe) and extremely low cash costs of production, estimated at no more than US$15 per tonne. This is indeed a prize. Add to this production base a brand new 0.5Mta white cement facility close to the coast, and Lafarge clearly reigns supreme in Algeria.

At the Lafarge boardroom level, are newcomers Paul Desmarais Jr and Thierry de Rudder, both executives with Groupe Bruxelles Lambert. To some, this comes over as a rather aggressive financial group, with its Belgium and Canadian backers, and one that has steadily built up an appreciable stake in Lafarge in recent years. Whether they were amused to see their stake diluted down to about 14.9 per cent with the latest Lafarge rights offer is debatable however, they are now reported to want to increase their shareholding up to between 20-30 per cent mark which perhaps gives a good indication of their own intentions for Lafarge.

The unknown of course is what happens if Orascom and Group Bruxelles decide to act in unison. The combined entity already represents a stake of over 25 per cent. Where will it all lead? A bid for the whole Lafarge group? One can only but speculate but it looks to have some credence.

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