The cement giant is spinning off its North American business. But he underestimated how difficult it is. The new company in the USA could be more Swiss than you think.
A stadium roof in Florida destroyed by a hurricane: In the USA, Holcim relies heavily on roofing products in addition to cement.
Even one of the world’s largest building materials companies can’t always build as quickly as it wants. The cement giant Holcim wants to completely spin off its business in North America and bring it onto the American stock exchange. Holcim surprisingly announced this radical change in January – and didn’t want to waste any time: the final structure of the new North American company should be announced in the second half of 2024, it was said at the time. Investor days should also be held during this time.
But neither will happen again this year. “We decided to wait a bit,” Holcim CEO Miljan Gutovic told reporters on Friday. The architecture of the new North America unit is apparently more complex than initially thought. Ultimately, there is a lot at stake: Holcim predicts that its North American activities will generate more than $20 billion in sales by 2030. The new company will be a leading provider in the American construction sector.
“The spin-off requires a lot of preparatory work”
The prospect of the spinoff is convincing investors. Holcim’s share price has increased by 23 percent since the announcement in January. The shares are currently at 84 francs, the highest value since 2008. Other cement stocks have also gained, such as those of German rival Heidelberg Materials, which is not considering any spin-off plans. But since spring a gap has opened up between the two courses. Holcim pulls away.
Mark Diethelm from Bank Vontobel comments that the spin-off involves dealing with many and complex topics at the same time: operational and legal questions as well as cooperation with the American authorities and stock exchanges. At the same time, the existing business is being pushed forward and Holcim is purchasing companies both in the USA and internationally. “The spin-off requires a lot of preparatory work,” confirms Diethelm.
Holcim says the group is making excellent progress in all respects. CEO Gutovic highlighted the effort required for approval by the US Securities and Exchange Commission. But the planned timing of the spin-off and stock exchange listing will not be changed: it should still take place in the first half of 2025. Given these prospects, the financial community can tolerate the fact that the details remain open for longer than announced.
The sun rises in the west
Remo Rosenau, chief analyst at Helvetische Bank, expects the spin-off to take place around the middle or end of the second quarter of 2025. Given this time horizon, it is questionable how useful an investor day that would have taken place four to five months before the effective spin-off would have been, says Rosenau : “It probably makes more sense to postpone this investor day until spring, when the figures for the 2024 financial year are known, especially for US business.” Holcim now argues the same way.
In general, industry experts continue to be impressed by the division. Holcim advertised it with the promise that the new company would better exploit the potential of the American market. This assessment is shared: a purely US company is more likely to win the contract for US projects than a non-American one, according to Vontobel analyst Diethelm. The company can also be run in a more “American” way, i.e. with greater risk, and growth through takeovers is more important on the other side of the Atlantic.
Holcim sees great opportunities in the USA, among other things due to high investments in infrastructure and the establishment of factories. Both are heavily supported by the government. Holcim’s pipeline of more than 150 infrastructure projects is “incredible,” said Gutovic. In addition, the group is systematically expanding its business outside of cement with its Solutions & Products division, for example with higher-margin products for roofing and building insulation. Last but not least, the need for renewal after the hurricanes is a growth driver.
Construction companies have an easier time on the US stock market
But while the bad weather rages, business is depressed. Holcim’s sales in North America fell slightly in the third quarter, but remained roughly unchanged across the group at 7.1 billion francs. However, operating profit (EBIT) improved significantly to 1.7 billion francs. The focus on more profitable construction products appears to be paying off. Margin growth was strongest in North America. The Swiss construction chemicals group Sika also reported good results on Friday, based on its American business.
The listing of Holcim’s spin-off on the American stock market is also seen as an opportunity. Construction companies are rewarded with higher prices on the local stock exchange. On the other hand, the European cement sector has to shoulder an “ESG penalty”: discounts on shares because the regulatory requirements for sustainability and more climate-friendly production are putting a strain on the business. The valuation of similar companies like Holcim is around 100 to 150 percent higher in the USA than in Europe, says Rosenau from Helvetische Bank.
Conversely, this means that the remaining Holcim without the North American business will also have a sharper profile for investors. The broker Stifel writes that the “old” Holcim could initially be in a better position on the stock exchange, partly because the American construction sector is already so highly valued. In other words: In Europe there is more room for prices to rise.
How Swiss is the American Holcim becoming?
The details of the separation are being worked out under the leadership of Chairman of the Board of Directors Jan Jenisch. One thing is clear: Holcim does not want to retain any stake in the US company; all shares are to be transferred to the existing investors. Nevertheless, the new company, whose name is not yet known, could turn out surprisingly Swiss.
It is possible that he maintains the operational headquarters in the USA, but the company headquarters will be located in Zug. That would have tax advantages, also for Swiss private investors. This would allow you to avoid being subject to American inheritance tax law under certain circumstances. Nevertheless, according to Rosenau, the new company would still be a US company.
Holcim has not denied this possibility. All variants would be examined, it was said. The same applies to a potential double listing in the USA and Switzerland. If the new shares could also be traded in Zurich, this would benefit institutional investors from Switzerland who do not want or cannot invest in US securities. This would eliminate a certain amount of selling pressure during the spin-off, says Diethelm, and these Swiss investors could participate in the growth of the infrastructure in the USA.
On the other hand, a double listing is likely to make rapid inclusion in the American leading index S&P 500 more difficult. So there are many points that Holcim has to weigh up – and once concrete is poured, it hardens quickly. You have to think carefully about the shape in which you cast it.