Lafarge to sell gypsum division for €1 billion

French cement giant Lafarge is reportedly gaining attention from buyout firms interested in its European gypsum division. According to reports, the building materials producer, the world’s second-largest by sales, has recently distributed an information memorandum to potential buyers and has already received interest from private equity buyers.

The sale is allegedly worth around €1 billion (US$1.45 billion), money which would come in handy as the indebted cement Group attempts to rid itself of a €16 billion debt burden through disposing of assets.

According to sources, firms including TPG Capital, Carlyle Group LP and PAI Partners could be considering bids for all or parts of the operations, although Lafarge has not yet released any official statement regarding the sale. As the Group’s US division is currently unprofitable, a decision to wait for a recovery prior to selling is a viable alternative.

Analysts have predicted the unit to fetch at least €450 million (US$605 million) or even up to €1 billion, provided profit recovers. Lafarge aims to retain investment-grade credit ratings after borrowing to make a US$15 billion acquisition in North Africa in early 2008, just before the untimely construction slump in Europe and the US set in.

Rafic El Haddad, an analyst at Natixis in Paris, recently commented: “The gypsum business is less and less at the core of the Group’s strategy, which wants to focus on cement and emerging markets. It looks like a business for private equity firms. Industrial players can’t buy it for antitrust reasons.”

In Europe, Cie. de Saint-Gobain SA, Lafarge, and Iphofen, German Knauf Gips KG control 95% of the market, El Haddad added.

At the general meeting in May 2010, Chief Executive Officer Bruno Lafont, who ran the gypsum division until 2003, told shareholders that the “strategic priority of the company is cement in emerging markets, and innovation, notably in concrete. We’re not closed, there is no taboo, there will be divestments.”

The gypsum unit may be worth about nine times its estimated 2010 earnings before interest and tax, according to Gaetan Dupont, an analyst at AlphaValue in Paris. Getting the equivalent of one year’s revenue would be a good price for Lafarge, Natixis’s El Haddad said.

Lafarge’s gypsum division is the world’s third-largest supplier of the mineral primarily used in plasterboard, and had a €38 million operating profit on sales of €1.36 billion in 2009, a figure equal to 8% of the Group’s total sales.

As some markets began to recover, earnings in the first nine months of 2010 climbed 14% to €48 million, whereas Lafarge’s North American gypsum operations posted a €33 million loss in the same period.

In the past four years the construction market in the US has suffered greatly and a large overhang of foreclosed residential property continues to diminish the demand for new building work. According to an industry insider, “the difficult bit [for Lafarge] is going to be the US piece, as the market there isn’t showing any signs of bouncing back in the near future”.

However those private equity firms interested would look to bid for the European and US part of the business as the company’s gypsum activities in Asia are in a 50:50 joint venture with Australian Boral Ltd., making it a natural buyer for the Asian component.

Dupont at AlphaValue commented recently: “The later they sell, the more they can get out of it because we’re at the start of an improvement in results and balance sheets in the industry. On the other hand, asset sales will have to be made quickly because debt will become too heavy from 2012 if it remains unchanged, so time may be playing against [Lafarge].”

The Lafarge stock gained as much as US$0.62 or 1.3% to €47.92 recently in Paris trading. In the last six months the stock has gained 20%.

Read the article online at: https://www.worldcement.com/europe-cis/21042011/lafarge-to-sell-gypsum-division-for-%E2%82%AC1-billion/