Competition Bureau statement regarding the proposed acquisition by Holcim of Lafarge

OTTAWA, May 4, 2015 — This statement summarizes the approach taken by the Competition Bureau in its review of the proposed acquisition by Holcim Ltd (Holcim) of Lafarge S.A. (Lafarge). The proposed acquisition involves the merger of two of the world’s largest manufacturers of cement and related products, with operations in numerous countries, including Canada.

The Bureau announced today that it has reached a consent agreement with Holcim that resolves competition concerns in Canada related to the proposed acquisition. Further to the consent agreement registered with the Competition Tribunal, the sale of all of Holcim’s Canadian operations and all associated assets together with Holcim’s United States (U.S.)-based cement plant in Three Forks, Montana (the Trident plant) will address the likely substantial lessening or prevention of competition in Canada that would otherwise result from the proposed acquisition. Holcim also included in the agreement five cement terminals located in the U.S. as it believes this will enhance the attractiveness of the sale of the Canadian assets.

In this global transaction, the Bureau coordinated with the U.S. Federal Trade Commission (U.S. FTC) and the European Commission to align its merger review process. In addition, as some assets being sold serve both U.S. and Canadian markets, the Bureau worked very closely with the U.S. FTC throughout its review in order to achieve an effective remedy in both jurisdictions. The Bureau’s long standing relationship with the U.S. FTC ensured an efficient and coordinated review of this matter, consistent with the agencies’ agreement on Best Practices on Cooperation in Cross-Border Merger Investigations.

Background

On April 7, 2014, Holcim and Lafarge publicly announced a global merger. As significant manufacturers of cement and related products, Holcim and Lafarge have overlapping operations in the cement, ready-mix concrete, and aggregates businesses in Canada. On July 7, 2014, as part of a proposed global process, Holcim and Lafarge offered to sell all of Holcim’s Canadian operations and all associated assets (the Initial Package). The parties also offered to sell certain cement terminals in the U.S. Great Lakes region as part of this Initial Package. In light of this initial proposed remedy, the Bureau’s review was focussed on determining whether Holcim’s assets located outside of Canada were important to the effectiveness of Holcim’s Canadian business. This involved a determination of whether the assets included in the Initial Package comprised a stand-alone business with respect to the merging parties’ overlapping operations.

Relevant markets

The Bureau determined that the Initial Package constituted Holcim’s entire stand-alone business in Canada in relation to ready-mix concrete, aggregates and construction services. The Bureau determined, however, that the assets in the Initial Package did not constitute Holcim’s entire stand-alone business for its cement operations in Canada. The Bureau’s analysis therefore focussed on the cement business.

Cement is the primary binding agent in concrete. It is made by heating limestone and other ingredients to extremely high temperatures to form "clinker" and then grinding clinker into a powder. Cement powder is then mixed with aggregates (crushed stone), water and other additives to create concrete. Cement is either sold directly from the manufacturing plant or is shipped by rail, truck or boat to a cement terminal, and subsequently sold to customers. Transportation costs make up a significant component of the price of cement and therefore there are limits to the distance cement can be shipped competitively. The Bureau considered that the geographic market for cement is regional.

Analysis

The focus of the Bureau’s analysis was on the manufacture and supply of cement. Throughout its review, the Bureau obtained information from the merging parties and third parties, and conducted interviews with many market participants, including customers, competitors, and other industry stakeholders.

The Bureau found that Holcim is an effective and vigorous competitor for the supply of cement in Alberta. In this concentrated marketplace, Holcim has the most terminals of any supplier currently importing cement into Alberta. For non-integrated cement customers (e.g. independent ready mix concrete producers), the Bureau concluded that Holcim is a particularly valuable supplier because Holcim has no competing downstream operations in Alberta.

The Bureau also found that the possibility of new entry or expansion by an existing competitor was not likely to be timely and sufficient to resolve competition concerns. Entry or expansion through the building of a cement plant, rail terminal or deep sea terminal was unlikely to occur in a timely manner. In addition, the Bureau determined that other firms selling cement in Alberta would not provide a sufficiently effective competitive constraint post-merger.

Following its review, the Bureau concluded that even if the Initial Package were to be sold to an acceptable purchaser, the proposed acquisition would result in the removal of a vigorous and effective competitor in Alberta. In reaching that conclusion, the Bureau noted that Holcim’s cement operations in Alberta rely extensively on cement supply from Holcim assets in the U.S. The Bureau determined that this supply would likely not be replaced by cement from other plants in the Initial Package because of significant transportation costs to Alberta and local buyer preference for low alkali cement.

Accordingly, the Bureau found that Holcim’s Trident plant needed to be added to the Initial Package. The Trident plant has historically provided the majority of Holcim’s cement in Alberta. Customers in Alberta are familiar with and accept cement from the Trident plant. With the inclusion of the Trident plant as a source of cement for Alberta, a purchaser of all of Holcim’s Canadian operations and associated assets would likely be an effective and viable competitor for cement supply in Alberta.

Conclusion

By requiring the sale of all of Holcim’s Canadian operations and all associated assets as well as the Trident plant, the Bureau is satisfied that the consent agreement will preserve competition in the supply of cement and related products in Canada.

The Competition Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace.

This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.

However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.


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