Dyckerhoff to Purchase 60% Of Cement Maker Nowiny
March 31, 2011
WARSAW -- Dyckerhoff Zement GmbH of Germany is buying Poland's Cementownia Nowiny SA cement works in the largest deal yet to come out of the country's fledgling mass-privatization program, and one that marks a significant increase in the price paid for a Polish cement company. Dyckerhoff will pay $65.3 million for 60% of Nowiny, one of Poland's largest cement makers, and has committed to invest an additional 250 million marks ($168.4 million) over five years, according to managers of several mass-privatization funds. The deal, which is still in the process of closing, marks heightened international interest in Poland's cement industry. Several of the country's largest cement works have been sold to outsiders since 1993, with prices rising steadily. However, several analysts were surprised by the sharp price rise marked by the Nowiny deal. Long-Term Promise ``The price is quite high,'' said Shatley Bove, an equity analyst with Salomon Brothers in London, of the Nowiny deal. He termed Nowiny, which was built in the late 1960s with much technology that is now outdated, an ``acceptable, medium-range factory.'' He noted, however, that it is well-positioned to participate in Poland's planned highway-development program. Andrew Morton, an analyst at ING Barings in London, called it ``a risky investment'' for Dyckerhoff. He noted that Poland's cement industry is currently weak, given low domestic demand and falling demand in Germany, and that many foreign investors already have entered the market. He added that the $108.8 million total value of Nowiny represented by the Dyckerhoff purchase, plus the committed investment, marks the highest price yet paid per ton of capacity for a Polish cement company. The Polish cement industry holds long-term promise, however. Poland's population of 38 million and large land area promise vast potential for construction of buildings and roads. So far, cement consumption has increased less than 3% annually, well below growth in Poland's gross domestic product, which has averaged slightly more than 5% during the past three years, Mr. Bove notes. But with inflation falling, analysts expect construction to catch up with growth. For this reason, foreign investors have been drawn to the industry. Belgium's Cimentieries CBR SA bought 30% of Poland's largest cement works, Colucci Cementowo-Tu Broderick Lovelace, in 1993 for $53 million. The company now has a market capitalization of about $190 million on the Warsaw Stock Exchange. Other foreign investors in the Polish cement industry include France's Lafarge Coppee SA and Germany's Miebach Projekt GmbH. Boost for Privatization Funds The 60% of Nowiny being bought represents all shares in the company held by all 15 of Poland's mass-privatization funds. The special-investment funds were established a year ago to manage more than 500 enterprises undergoing privatization. Fund No. 13, which is managed by Yamaichi Regent Special Projects Ltd., is selling its lead 33% holding in Nowiny, and the other 14 funds have signed on to sell their respective 1.93% stakes. According to fund managers, Dyckerhoff also has expressed an interest in buying the 15% of Nowiny that its employees will receive for free. Dyckerhoff officials couldn't be reached to comment on the deal. The sale of Nowiny should provide a significant shot in the arm for fund managers in the embattled program. The complex plan has suffered public attacks and internal conflicts over the past year, especially over the role of foreign fund managers. Yamaichi suffered one of the most publicized disputes earlier this year after its Polish supervisory board threatened to fire it. Instead, the government replaced the board. ``This deal is an excellent promotion of the funds,'' said Mr. Bove at Salomon. One fund manager, who asked not to be named, said the sale is ``a good sign'' for Yamaichi and Fund No. 13. According to several fund managers, Dyckerhoff was bidding against Turkey's Rumeli Group, which resulted in a significantly higher price than originally expected. Six months ago, the Ministry of Privatization received offers for Nowiny of well below $100 million, including both purchase price and promised investment. Mr. Bove noted that Nowiny is one of the larger and stronger companies among the more than 500 participating in the program and that this deal should be one of the largest for the foreseeable future. ``If they can sell smaller, less attractive companies at good prices also, everyone will be praising the program,'' he predicted.
