Lafarge to Purchase Orascom Cement for EU8.8 Billion

Lafarge to Purchase Orascom Cement for EU8.8 Billion (Update3)

By David Whitehouse and Tara Patel

Dec. 10 (Bloomberg) -- Lafarge SA agreed to buy the cement unit of Orascom Construction Industries for 8.8 billion euros ($12.9 billion), becoming the biggest producer in Egypt, Algeria and the United Arab Emirates.

Lafarge, the world's largest cement company, will sell Orascom Chief Executive Officer Nassef Sawiris an 11.4 percent stake as part of the deal, the Paris-based company said. Lafarge will also borrow 6 billion euros to finance the purchase.

The acquisition of Orascom, the biggest publicly traded cement maker in the Middle East, will add 45 million tons of production in fast-growing emerging markets. Lafarge and Switzerland's Holcim Ltd. are investing overseas to tap growth in global construction and transport spending.

``This is a positive move, highlighting the need for Lafarge to boost its presence in emerging countries,'' said Emmanuel Soupre, a fund manager at Neuflize Gestion in Paris, which oversees $15.6 billion. He holds Lafarge shares.

Lafarge climbed as much as 7.3 percent, or 8.83 euros to 115.5 euros and was trading at 114.79 euros as of 9:33 a.m. in Paris. Orascom, which said it will return $11 billion to investors, climbed 10 percent to 600 Egyptian pounds.

After the purchase, Lafarge expects 65 percent of earnings before interest, tax, depreciation and amortization to come from emerging markets by 2010, compared with 45 percent now.

Global Expansion

``Orascom Cement's positions are concentrated in a fast- growing region that will fully benefit from the boom in oil and natural gas revenues,'' Lafarge Chief Executive Officer Bruno Lafont said in the statement. The purchase will increase earnings per share from the first year, he said.

Facing a possible slowdown in the U.S. economy, Lafont said the acquisition of Orascom Cement will allow the company to be better balanced between developed and developing markets.

``The purchase will allow us to develop our market positions in emerging markets as well as building factories there,'' Lafont said on a conference call with reporters.

Orascom's cement business will have a capacity of 35 million tons in 2008 and will grow to 45 million tons in 2010. This will push the company's total production capacity to 260 million tons in 2010, Lafarge said.

The company has said it plans to invest $600 million in new plants and factory upgrades in China and this month spent $780 million to increase its stake in Ambuja Cements Ltd. of India.

Sales Growing

Orascom cement has projected annual sales growth of 30 percent and 33 percent for Ebitda between 2007 and 2010.

The acquisition, along with recent investments in Lafarge by Groupe Bruxelles Lambert SA, Belgian billionaire Albert Frere's investment company, will lead to changes in the make up of Lafarge's board of directors, Lafont said. Groupe Bruxelles Lambert now holds between 17.5 percent and 18 percent of Lafarge, he said.

The investment in Lafarge by Sawiris will be done through a holding company composed of other members of his family, Lafont said. It will get ``more than one'' Lafarge board seat, he said without specifying the number of seats that will be held by GBL. ``This will be decided next week,'' he said. The investment will be subject to a four-year lock up period, Lafont said.

The acquisition will be financed by BNP Paribas, Calyon and Morgan Stanley.

BLOOMBERG