Being seen to be green is rapidly moving up the business agenda.
Sustainability is becoming an important consideration in the investment world. There has been a boom in funds focusing on companies with high ESG ratings. ESG? Environmental, social, governance.
If you are the world’s largest cement producer – a massive CO2 polluter and long-time contributor to our climate crisis – that might be seen as a problem. There’s surely a limit to the amount of greenwash that can be sprayed around, so, with the obvious FOMO, what is LafargeHolcim – parent company of Aggregate Industries – to do?
This acquisition announced yesterday gives a clue.
LafargeHolcim to buy Firestone Building Products in $3.4 billion deal https://t.co/STpdZ7ur1Y pic.twitter.com/PPqGirygSE
— Reuters (@Reuters) January 7, 2021
LafargeHolcim... announced a $3.4 billion deal to buy Firestone Building Products from Japan’s Bridgestone Corporation in its biggest acquisition in more than a decade.
It will help LafargeHolcim tap increasing demand for roofs that generate solar energy and cool buildings, with cities such as San Francisco requiring solar panels on new buildings.
LafargeHolcim's CEO Jan Jenisch has dreams "to become the market leader in flat roofing systems":
Jenisch said his company’s focus was now on growth, with plans to roll out Firestone Building Products beyond the United States where it currently generates nearly 90% of its $1.8 billion in annual sales.
With headquarters in Nashville, Tennessee, Firestone Building Products, claims "our environmental mission is simple":
to help ensure a healthy environment for current and future generations. We are constantly striving to develop eco-friendly products and processes that pave the way for a brighter tomorrow.
But this repositioning towards a brighter tomorrow came "at a high price". Firestone Building Products had been expected to fetch around $2.5 billion. According to Bloomberg Intelligence:
The high price being paid and the ambition to achieve $110 million in synergies a year, over two years, is questionable when the company has so much to invest in the decarbonization of its core business.
Reuters calculated:
Adding $55 million of expected cost savings and taxing the total at Bridgestone’s 27% rate means the deal would add $232 million to LafargeHolcim’s bottom line – implying a 7% return on investment versus Morningstar’s estimated 9% cost of capital for the company.
The deal had been rumoured for some days. Morgan Stanley thought the purchase offers "very little overlap" with LafargeHolcim’s main cement and aggregates focus. Citigroup however recognised that:
A potential acquisition in this space should also boost the ESG credentials of the company as a supplier of energy saving products in the building and construction sector.
As we know, cement is responsible for about 8% of global CO2 emissions. LafargeHolcim – a company that in 2019 added nearly 150 million tonnes of CO2 to our atmosphere – is now shamelessly keen to profit from the climate crisis it helped to create. In the FT, Mr Jenisch claimed "the future of the roof is flat, green and insulated":
Climate change is unfortunately an amazing new business for us and I think we have a solid market ahead.
And isn't that great? That climate change has presented a new way for this CO2 polluter to make money.
