Where will LafargeHolcim reinvest?

In the last year LafargeHolcim has been disposing of assets in the cement market in which it no longer sees long-term value. This has meant the US$917m sale of its 80.6 per cent share holding in PT Holcim Indonesia to PT Semen Indonesia as well as its 51 per cent stake in Lafarge Malaysia for US$365m and the disposal of its 91 per cent holding in Holcim Singapore to YTL Cement. Closure of the sale of Holcim Philippines Inc to San Miguel Corp for US$2.5bn is expected to be completed in the final quarter of 2019. All this activity has built up a substantial amount of capital that the company can now reinvest and some of the targets are becoming clearer.

LafargeHolcim's CEO, Jan Jenisch, said in May that he is eyeing at least 10 bolt-on acquisitions in 2019. They began with the ready-mix sector where LafargeHolcim gobbled up two ready-mix companies in the USA and Germany in February 2019. These acquisitions were followed with another ready-mix concrete producer in Texas, USA. 

However, there is now a much larger acquisition target in sight. According to press reports, LafargeHolcim is lining up to buy the Construction Chemical division of BASF. The value of the BASF division is estimated at EUR3bn, according to a Bloomberg report.

BASF's Construction Chemicals unit has been up for sale since October 2018, following a strategic review by the company that deemed the division too small to compete as a stand-alone unit. “The unit has a very low degree of integration into the rest of the BASF network and it does not fully meet our expectations regarding profitability,” said BASF finance chief, Hans-Ulrich Engel.

Beyond additives and mortars for cement sector, the BASF business offers a range of substances for builders including concrete repair fillers, grouts and sealants under a business line called Construction Systems, where BASF is globally the number four player. 

The acquisition would make perfect sense with Jan Jenisch's background in chemical additives, from his time as Sika's CEO. The construction chemical business is well known to LafargeHolci's CEO and it would fit well with his new strategy to diversify the business.

But as well as opening up new opportunities, the success of the deal would depend on the new LafargeHolcim unit being able to sell its products to all the concrete makers and other businesses that are currently its competitors. As it stands, the company's own businesses would not be large enough market on their own.  

It is still early days, and LafargeHolcim must now compete with a host of other companies, with Sika, Bain Capital, Cinven, Advent, Blackstone and Standard Industries Inc, KKR and Lone Star also looking at a potential purchase of the BASF unit.