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Synergies and value creation in HeidelbergCement-Italcementi deal

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World Cement,

HeidelbergCement has announced that it is acquiring a 45% stake in Italcementi.

“Following closing of the transaction, our goal is to deliver annual run-rate synergies of €175 million by 2018,” said HeidelbergCement’s CFO Dr Lorenz Näger. “Italcementi is expected to significantly add to our free cash flow and we are upgrading our mid-term financial targets for 2019 to reflect the positive impact of the transaction. We remain fully committed to our dividend policy and shareholder return focus presented at our Capital Markets Day in June 2015.”

In a statement, HeidelbergCement said that the acquisition of Italcementi will create significant potential for synergies, including 30% of the targeted €175 million within 2016 when the transaction is expected to close. The largest synergy contributions are expected to come from the operational business and from sales and general administration. Further synergies are expected to be generated in the commercial area and in purchasing.

HeidelbergCement has implemented various programmes to improve operational, commercial and financial excellence in recent years, which have made a considerable contribution to the group’s positive earnings development. The group hopes to build on this in the context of a larger platform that includes Italcementi.

In addition to the manufacturing facilities, HeidelbergCement will also gain Italcementi’s R&D capabilities in the fields of process and product innovation. In particular, Italcementi is known for the development of innovative, high-performance materials such as the innovative biodynamic cement used in the construction of the Italian pavilion at Expo 2015.

Financing of the acquisition

Financing of the acquisition will be through cash and a fully underwritten bridge financing of €4.4 billion provided by Deutsche Bank and Morgan Stanley. The debt financing will be partially refinanced by bond issuances, by operational cashflow and the proceeds from disposals, which are expected to generate proceeds of €1 billion. The sale of non-core assets of Italcementi to current owners Italmobiliare has already been agreed, and HeidelbergCement intends to dispose of single assets with a focus on geographical markets in which the two companies overlap.

Positive future

To reflect the positive impact of this transaction, HeidelbergCement is increasing its mid-term financial targets (to 2019), as follows:

  • Group revenue up to €20 billion from €17 billion.
  • Operating EBITDA up to more than €5 billion from €4 billion.

HeidelbergCement projects cumulative free cash flow of approximately €10.9 billion for the 2015 – 2019 period, of which €1.9 billion will be used in this transaction. The group remains committed to reach a dividend pay-out ratio of 40 – 45% by FY19.

Adapted from press release by

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