The second and third largest cement makers in the world, Lafarge of France and Holcim of Switzerland, have planned sizeable divestments in order to push a merger past competition rules.
As both companies are leaders in numerous world markets, the $50bn deal faces the prospect of significant anti-trust hurdles across the globe.
Combined, the companies would skip above Chinese-state owned CNBM to become the largest cement company in the world, with a combined cement-making market share of almost 60% in France, Canada and Morocco and 30% in the US.
The boards of both Lafarge, which owns Blue Circle Industries in the UK, and Holcim have planned asset sales in order to make the deal more palatable to antitrust officials.
In a meeting with analysts, Holcim Chairman Rolf Soiron and Lafarge Chief Executive Officer (CEO) Bruno Lafont, who is the proposed CEO of the merged company, said they expected amount of divestment will be "sizeable" - between 10 to 15% of combined earnings before interest, tax, depreciation and amortisation (EBITDA) - but "not critical", according to analyst Patrick Appenzeller at Helvea Equity Research.
Deutsche Bank said such a deal would be "transformational" for the much-globalised sector, but while it could lead to significant cost savings and offers the opportunity for improved market dynamics for both companies, these disposals would probably "reduce the ultimate capture of synergies".
A merged group would see market shares
rise above 50% in eight countries and a further 12 countries, analysts calculate, seeing meaningful increases in market share.
Based on a multiple of eight times EBITDA, the pair could dispose of €5bn-€8bn euros' worth of business, according to analysts at Natixis.
Based on the contents of the analyst meeting, Helvea's Appenzeller was sceptical about the deal but reported the comments from Soiron and Lafont. "The companies will have to sell high-quality assets, but there should be a strong appetite for the necessary disposals. The majority of divestment will be in Europe (and we assume also Canada) so the weight of developed markets will therefore diminish and emerging markets will consequently gain importance."
Soiron said the rationale for the deal's timing was a "unique" window with enthusiasm from major shareholders, the low interest rate environment and appetite for investments, the latter was crucial in order to attain good prices for the necessary disposals.
Both companies, as well two other large cement companies, have been under investigation for cartel behaviour and price-fixing by the European Commission since 2008.
If the deal is completed, with one Holcim share offered for one Lafarge share, the new company will be based in Switzerland and listed in Zurich and Paris.
The new group's combined turnover would be roughly €32bn, with EBITDA of €6.5bn.
UBS was positive on the deal. "The potential value uplift is material: based on €1.2bn of synergies, we calculate equity value uplift of 25% pre Friday's move to the combined market cap."
The first look from JPMorgan was also favourable, with analysts writing: "In our view, a merger would be geographically complementary and lead to significant cost synergies of circa €500m per annum, as well as financial ones, which together could add 15% to combined entity group earnings by year three and 11% to the combined valuations as of Thursday's close."
However, the broker raised questions over the likelihood of the transaction completing due to the significant scrutiny from an anti-trust perspective.
"Overall, we would view it as positive for the industry with the potential for a better pricing environment, asset swaps and further consolidation."
Although other possible merger talk in the industry had not emerged, Deutsche analysts said it was hard not to see HeidelbergCement "at least considering its options were these talks to conclude favourably or unfavourably".
"This may also raise the focus of the mid cap names -although many of these have significant shareholders and/or less scope for cost savings and market consolidation. Any forced disposals may offer opportunities for others to pick up assets at perhaps opportunistic prices."
Deutsche and Cantor suggested that those others who may look to pick up assets might include London-listed CRH, which recently bought Ukrainian cement plant from Lafarge and will look at global assets purchases; Mexico's Cemex, and other more regional players such as London-listed Breedon Aggregates looking for purchases in UK aggregates and perhaps USA; with USA buyers including Vulcan Materials, Texas Industries, Italcementi, Buzzi Unicem and Cemargo.
Cantor estimate anti-trust issues will require divestments of up to €4bn of asset in UK aggregates, France, Spain, Germany, Czech Republic, Hungary, Romania, USA (North East and Colorado), Brazil, India (east only), China (1/2 plants) and Singaporean (RMX). Analyst Ian Osburn said other industrial buyers such Mittal or large customers like Vinci in France could also figure, while private equity companies were possible actors "but likely marginal players given high capital intensity of the industry and difficulty in operations".
He added: "We also believe this potentially opens the door to more M&A in the sector. HeidelbergCement may now feel it has lines of credit open to it and would be dwarfed by the new LafargeHolcim group."
By 09.30, both companies' shares had come back a little from initial spikes, with Lafarge up 3.03% to €66.03 and Holcim's price ahead 1.8% to €81.65. CRH was up 1.3% to 1,798p.