The listed units of China’s largest and fourth-largest cement producers have agreed to merge, following the marriage of their two parent companies last year, as part of Beijing’s effort to consolidate a domestic industry saddled with overcapacity.
State-owned parent firms, China National Building Material Group (CNBM Group) and China National Materials Group (Sinoma Group) were ordered by Beijing to merge last year to create the world’s largest building materials maker, surpassing Switzerland-based LafargeHolcim.
Each holder of Sinoma shares will receive 0.85 CNBM shares, the two firms said in a filing to Hong Kong’s bourse late on Friday.
CNBM shares rose as much as 3.8 per cent soon after market opened on Monday, but the gain steadily eroded and closed the morning session 2 per cent lower at HK$4.92 (US 63 cents).
Sinoma also gave up much of its early gains and closed the session 12.6 per cent higher at HK$4.03.
The exchange ratio agreed by CNBM and Sinoma has given due consideration to factors such as capital market performance, business and operating result, said a joint statement from both Chinese cement companies on Monday.
The shares exchange offer represents a premium of 19.2 per cent over the ratio of the last trading prices of CNBM and Sinoma before the merger announcement. The the central government has around 100 offshoots to administer the state firms.
CNBM, which also makes lightweight building materials, glass fibre and provide engineering services, said its merger with Sinoma would improve product mix, provide better customer service, expand geographical coverage, strengthen market influence.
Besides cement, Sinoma also provides cement equipment and engineering services, and “hi-tech materials” such as glass fibre, composite materials, synthetic crystals and advanced ceramics.
CNBM’s annual cement production capacity is 409 million tonnes and Sinoma’s 112 million tonnes.
The former recorded net profit of 885 million yuan (US$136 million) for this year’s first half, and 1.06 billion yuan for whole of last year. First-half turnover was 53.4 billion yuan in the first half.
Sinoma had an interim net profit of 596 million yuan this year and 585 million yuan for the last year. Its first half revenue was 25.1 billion yuan.
The merger is still subject to approval of not less than two-thirds of both CNBM’s and Sinoma’s shareholders’ – of both listed and unlisted shares – casting votes.
It also needs the support of at least 75 per cent of votes from Sinoma’s Hong Kong-listed share holders, and that no more than 10 per cent of the votes are against the merger.
China’s antitrust authorities will also have to approve the deal, based on its effects of reducing market competition.
China Galaxy International head of research Wong Chi-man said “arbitrage” activities by hedge funds mean the two will trade in relative tandem, and the ratios of their share prices will remain in a narrow band.
“This is because if CNBM trades at too low a level relative to Sinoma, the latter’s shareholders will likely reject the merger proposal,” he said.