HeidelbergCement, Italcementi In Deal Talks-Sources -Update

By Shayndi Raice, Eyk Henning and Eric Sylvers 

Germany's HeidelbergCement AG and Italian rival Italcementi SpA are discussing a combination, according to people familiar with the matter, in a deal that would further consolidate Europe's building-materials industry.

Italcementi had a market value Tuesday of EUR2.3 billion ($2.5 billion), meaning that, with a typical takeover premium, a tie-up could value it at more than $3 billion should the company be bought out in full.

Details of the combination the companies are discussing couldn't be learned.

HeidelbergCement had a market capitalization of EUR13.3 billion.

A transaction would come amid a reshaping of Europe's cement sector. Last week, Switzerland's Holcim Ltd. and France's Lafarge SA completed a $40 billion merger. Also, French building-materials group Saint Gobain SA is in the process of taking over Switzerland's Sika AG, a maker of chemicals used in the building and construction industry.

Including debt, a deal could value Italcementi around $6 billion, one of the people said.

HeidelbergCement, currently the world's number four cement producer, last year recorded revenue of EUR12.6 billion. A deal with Italcementi could help the company expand in emerging markets in Europe, Northern Africa and the Middle East.

Italcementi, formally ItalcementiFabbriche Riunite CementoSpA Bergamo, is the world's fifth-largest cement producer with a production capacity of more than 60 metric million tons, according to its website. It recorded a EUR50 million net loss on roughly EUR4.2 billion in revenues last year.

HeidelbergCement last year agreed to sell its Hanson Building Products unit in North America and the U.K. for $1.4 billion to reduce its debt pile and sharpen its focus on processing and refining raw materials for its core cement and aggregates products.

The operations sold stemmed from HeidelbergCement's nearly $16 billion acquisition of British rival Hanson PLC in 2007. The deal left the company with more than $13 billion in debt.

HeidelbergCement and Italcementi are no strangers. Both signed a licensing agreement for joint use of cement binders developed by Italcementi.

A combination of Italcementi and HeidelbergCement would be the most logical next step in the industry given their complementary geographical footprint, analysts from investment bank Natixis said in a note April.

Such a deal has a "strong probability," they added, cautioning that the Pesenti family, which owns a large stake in Italcementi, may wait for the Italian building market to recover before considering a disposal. They expect such a recovery next year.

Write to Shayndi Raice at [e-mail], Eyk Henning at [e-mail] and Eric Sylvers at [e-mail]

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