Recently, Heidelberg finally provided a more detailed information about its acquisition of Italian Cement Group, which includes the main results of 2015. Among other things, the key message is that everything is going well. The expected cost savings from mergers and acquisitions are growing, the amount of borrowing required for acquisitions is being reduced, and mergers are being approved by local competition committees.
Focus on cost savings first. When Heidelberg announced the acquisition in late July 2015, it first estimated that the merger of the two companies would save 175 million euros in operating costs. At that time, Heidelberg hoped to achieve 30% of the target in 2016. In this case, the effect of the merger and acquisition will be more ideal. The biggest savings are expected to come from commercial areas and procurement.
In Heidelberg's third quarter results announcement released in November 2015, the value has increased to 300 million euros, including the impact of financing costs and taxes. At this point, some of the strategies for how Heidelberg plans to use Italian Cement's resources are beginning to emerge from the synergy calculations. Heidelberg intends to use Italcementi's "export-oriented" cement plant to form a global trading business. For example, the import demand of North America and Africa, which was previously purchased from third parties, can now be provided by the merged Italian cement plant to meet local demand and improve its capacity utilization. Initial cost savings made public in 2015 have increased to 400 million euros, but there is a lack of explanation.
Secondly, financing is also progressing smoothly. Loans for acquisitions have fallen from 4.4 billion euros to 2 billion euros. The reasons behind this are: the exclusion of the risk of a mandatory tender offer for minority shareholders in Morocco; the change in the terms under which some of Italcementi's creditor banks agreed to waive their control; and the issuance of a € 625m bond in January 2016. Heidelberg will initially have access to € 2.7bn in bridge financing from Deutsche Bank and Morgan Stanley.
Finally, the competition commissions of India, Canada, Morocco and Kazakhstan have obtained merger approvals. Although the company in India will hold 10.5 million tons of annual cement production capacity and an additional 4.1 million tons of annual capacity under construction, this is not a problem for India with a total annual cement capacity of 280 million tons. The Elzinga-Hogarty Test was conducted by the local committee and showed that the local market was sufficiently competitive.
Approval of mergers in Europe and the US can be tricky. In Europe, Belgium may be the main problem, as the two companies have an annual capacity of 4.5 million tons, accounting for 73% of the market share, where divestment is expected.
In the United States, there should be no interference in Heidelberg. After the consolidation of cement assets, Heidelberg and Italy Cement will have an annual cement production capacity of 16.4 million tons, accounting for 14% of the market share. This will be the second largest cement company after LafargeHolcim, which merged in 2015. There is no significant overlap in its clinker production lines, except for a small location in Pennsylvania, where Italcementi owns Essroc, which produces 2 million tons of ordinary Portland cement per year. Nazareth Plant, Heidelberg also has a white cement plant Lehigh White Cement with an annual output of 130,000 tons, but there is no competition between the two plants.
Therefore, it is expected that the acquisition will continue to proceed smoothly. Since the relevant information about M & A comes directly from Heidelberg, it is impossible to appear elsewhere. It is expected that Italcementi will release its 2015 financial results at a later date.
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