BAMBURI AND EAPCC MERGER

This was in last week's EastAfrican paper and was redone by pesa tu blog in a way that is easily understood.

Bamburi/EAPC merger

Lafarge is a large and clever company.It has stakes in its Kenyan competitors' Athi River Mining(15%),East Africa Portland Cement (41%).Its main regional company is Bamburi Cement(63% stake).For a while,the Government has been eager to stop its ownership of competitors.It has been proposing the sale of the Lafarge stakes in EAPC and ARM, especially EAPC since only 6.3% is listed on the NSE contrary to listing requirements that 25% of a company should be listed.
Regionally Lafarge have other holdings in the region i.e.Mbeya Cement-Tanzania(62% Lafarge held) and Hima Cement-Uganda(71% Lafarge held through Bamburi).
The industry
Right now there is a construction boom in the Middle-East so Eyptians are selling their cement to their brothers in the Gulf,at the same time the high freight rates and Port efficiencies make it expensive to import cement to East Africa.For now the two factors are saving the hides of our local cement producers.
At the same time local cement demand is rising installed capacity in Kenya is at 3.3million tonnes(actual capacity is probaly 2.5-3.0 million tonnes),Annual cement demand excluding what we send to Sudan,Rwanda and Uganda is at 1.8million tonnes and rising at 10% per year.
Eastern Africa
Cement demand is rising all over the region DRC,Rwanda,South sudan, Uganda and Tanzania are all consuming more cement.So unless, we have more factories we will have a supply constraint sooner rather than later.Unless,the boom in China and the Gulf explodes and we have a glut coming our way.

The issue
The Government of Kenya wants to introduce more competition in the Kenyan cement market by forcing Lafarge to sell its stakes in EAPC and ARM.On the other hand,Lafarge sees the Eastern african region as a growing economic area and doesnt want to sell the stakes.

The Proposition
Lafarge offers to merge Bamburi and EAPC and add Mbeya and Hima Cement to the deal to create a super East african cement company to fight external competition.(think of it as an East African Breweries for cement).
win-win for both parties i.e. Lafarge consolidates its holdings in the region and Government gets a large stake in a succesful East African Cement company.

Other players
The other players in the region such as ARM,Tororo Cement and Tanga may have to consolidate in order to achieve the size and scale necesary to compete with the new entity(if it happens)

My take
We should take the offer but ask Lafarge to add their other companies in Malawi and Zambia to the deal.



Originally by pesa tu blog and re-blogged here by assidous