Lafarge Corporation

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Lafarge Corporation

11130 Sunrise Valley Drive, Suite 300
Reston, Virginia 20191-4329
U.S.A.
(703) 264-3600
Fax: (703) 264-0634
Web site: http://www.lafargecorp.com

Public Company
Incorporated :1909 as Canada Cement Company
Employees :10,000
Sales :$2.44 billion (1998)
Stock Exchanges :New York Toronto Montreal
Ticker Symbol :LAF
NAIC :32731 Cement Manufacturing; 327331 Concrete Block & Brick Manufacturing; 327332 Concrete Pipe Manufacturing; 32739 Other Concrete Product Manufacturing; 32732 Ready-Mix Concrete Manufacturing; 32742 Gypsum Product Manufacturing; 212312 Crushed & Broken Limestone Mining & Quarrying

Lafarge Corporation, a U.S. holding company, is the largest construction materials company in North America. With more than 500 facilities in 44 states and all provinces of Canada, the company’s three operating groups produce and distribute products ranging from cements and fly ash to concrete pipes and bricks to gypsum wallboard. A Lafarge subsidiary, Systech Environmental Corporation, supplies fuel-quality waste for burning in cement kilns and alternative raw materials used in producing cement. Paris-based Lafarge S.A. owns approximately 52 percent of Lafarge Corporation.

Mergers in Canada: 1909-70

In the early part of the century the cement business in Canada was fiercely competitive, with companies producing more cement than was needed. In 1909 Max Aitken, a businessman, suggested that ten companies merge to try to stabilize the industry. The result was the Canada Cement Company. Based in Montreal, the new enterprise went on to dominate the Canadian market, manufacturing and selling cement.

Cement, a fine powder, was first processed in 1824. It got the name portland cement because it looked like the gray stone found on the island of Portland off the coast of England. Cement was a critical ingredient in the making of concrete, used in residential and commercial buildings as well as roads, dams, and other public works.

All cement contained four elements: calcium, silica, aluminum, and iron. To make its cement, Canada Cement Company quarried stone, usually limestone because it had a lot of calcium, and crushed it into pieces no bigger than two inches in size. Those pieces were blended with sand, bauxite, or other additives to get the correct mixture of elements, ground more finely, and cooked in a kiln, using coal or coke to reach temperatures of up to 2700 degrees Fahrenheit. In the kiln, small cement pellets called “clinker” formed, which, after cooling, were ground into fine cement powder. Depending on the properties needed for the concrete it would be used to make, fly ash or gypsum might be added to the cement. It was then shipped out to the buyer, who combined it with water and aggregates (crushed stone, sand, and gravel) to make ready-mix concrete.

In 1956, nearly 50 years after Canada Cement was formed, Ciments Lafarge, a French company founded in 1833, came to Canada. It built a cement plant near Vancouver, British Columbia, and formed Lafarge Cement North America. In 1970 the Lafarge operation merged with Canada Cement (still the largest cement producer in the country), creating Canada Cement Lafarge Ltd. (CCL), with 11 plants coast-to-coast.

Entering the U.S. Market: 1971-82

In addition to its cement business, the new company was increasingly producing and supplying its own ready-mix concrete and aggregates. The year 1972 saw the creation of a new subsidiary, Canfarge Ltd., to oversee its concrete-related, construction materials business.

In 1973 CCL moved south into the U.S. market. With Lone Star Industries Inc., a U.S. company based in Texas, CCL established Citadel Cement Corporation, a joint venture to distribute cement in the southeastern part of the United States. Citadel began operations in January 1974, in Atlanta, Georgia. When the joint venture dissolved in 1977, CCL kept Citadel and two cement plants in the southern United States, incorporating the wholly owned subsidiary as Citadel Cement Corporation of Maryland.

The 1982 recession in the United States slowed housing and other construction activity to a 20-year low, and CCL reported a net loss of $25 million on revenues of $900 million. Despite the difficult times, CCL borrowed money to buy General Portland Inc., the second largest U.S. cement producer, for $326 million. The Dallas-based company, with ten plants and the capacity to make six million tons of cement a year, traced its roots to the Southwestern States Portland Cement Company, established in 1907.

Lafarge Corporation: 1983-85

In 1983 CCL underwent a major reorganization. In February, Citadel’s name was changed to Lafarge Corporation, and in April, Lafarge Coppée, the company’s French parent, made it a U.S. holding company. What had been a CCL subsidiary was now CCL’s parent, having received 69 percent of CCL in a stock exchange with Lafarge Coppée and five French banks. The move was made primarily to make it easier for the company to raise money in U.S. equity markets. “We just couldn’t raise enough equity in Canada,” Lafarge’s vice-president of investor relations told Fortune in a 1984 article.

The new company, the largest cement manufacturer in North America, was headquartered in Dallas, with General Portland and CCL becoming wholly owned subsidiaries. Later that fall, Lafarge Corporation issued common and convertible stock in a $44 million offering. The money raised was used to refinance some of the debt incurred in the General Portland purchase.

The construction economy began improving in the United States during 1983, with a slower recovery in Canada. Lafarge Corporation benefited from the increased cement consumption and stabilization of cement prices, although it still operated at a net loss of $13.1 million for the year. The reason for the price stabilization, and one of the domestic cement industry’s biggest problems, was that as construction picked up, foreign producers poured concrete into the U.S. market, taking advantage of the high dollar and low shipping rates to get rid of an excess overseas. The company sold some of its nonessential properties in both Canada and the United States as it began taking cost-cutting measures. “We realized that we had entered a new world in which pricing patterns were going to be different than in the past,” the company’s chief financial officer reflected in a 1988 Washington Post article.

It also began cutting labor costs, which led to a six-month strike during 1984. At the end of the year it operated 19 cement manufacturing plants with an annual capacity of some 13 million tons of cement. In Canada, where the company also manufactured ready-mix concrete and concrete products, its markets spread across the country. In the United States, the company’s markets were primarily across the South and Southwest.

By 1985 the company was again operating in the black, with net sales of $944.5 million. In Canada, cement consumption grew by 13 percent during the year, evidence of a strong construction recovery. In the United States, the company saw its cement shipments increase by ten percent and operating income grew despite lower cement prices due to more imports. That year Lafarge Corporation opened a new research and technical center in Montreal, the largest private laboratory in the North American cement industry.

Acquisitions, Restructuring, and a Move: 1986-87

During the latter part of the decade, Lafarge Corporation began buying other companies. In 1986 its U.S. subsidiary, General Portland, bought East Texas Stone Co. That acquisition increased Lafarge’s aggregates resources in the United States, which then included operations in Louisiana, New York, and Washington. Later that year Lafarge Corporation bought Systech Environmental Corporation, a company that processed industrial waste to fuel cement kilns, 14 cement distribution terminals along the Great Lakes, and a closed cement plant in Alpena, Michigan, which it reopened a few months later.

The Systech purchase was an important factor in the company’s attempt to cut its fuel expenses. Cement makers began testing the burning of hazardous waste in their kilns during the 1960s, and Systech first began supplying Lafarge Corporation (then CCL) in 1979. The fuels were the byproducts of plants, producing items such as paints, inks, cosmetics, and electronics, as well as auto and truck assembly operations. During the mid-1980s the alternative fuel business boomed; Systech’s sales grew from $1.8 million gallons in 1980 to approximately 51 million gallons in 1988.

Early in 1987 Lafarge Corporation reorganized its operations, combining the activities of CCL and General Portland under a single management, and creating four regional operating groups covering cement manufacturing and marketing in both the United States and Canada and a fifth unit responsible for other construction materials products. Bertrand Collomb, who had been the head of General Portland and, previously, president and CEO of Ciments Lafarge France, became vice-chairman and chief executive officer. Robert Murdoch, formerly head of Canada Cement Lafarge, was named president and chief operating officer. In a company press release, Collomb explained the move, “This restructuring will permit us to take a more integrated perspective to our overall North American operations and their development opportunities.”

Company Perspectives

Lafarge combines the vast resources of a large company with the responsiveness of a small local supplier, offering the best of both worlds.

In the fall of 1987 the company moved to Reston, Virginia, outside Washington, D.C., to be closer to its Canadian offices and French parent and more central to its markets. The company decorated the halls of its new corporate offices with framed cement bags, presenting an honor roll of small companies that were now part of Lafarge. Effective January 1988, CCL changed its name to Lafarge Canada Inc. in recognition of the growth of its construction materials business as well as its cement operations, and General Portland was merged into the company.

The move and the reorganization occurred as the company was undergoing “a remarkable turnaround,” according to the Washington Post. For 1987, Lafarge Corporation reported profits of $75 million on sales of $1.22 billion, a 27 percent increase over 1986 sales. Cement accounted for 55 percent of 1987 sales, with the remaining 45 percent coming from construction materials. Canadian operations contributed 57 percent of sales and 78 percent of the company’s operating income.

Vertical Integration: 1988-92

In 1987 the Federal Trade Commission (FTC) issued a new ruling permitting vertical integration in the construction materials industries. The FTC decision overturned an 18-year-old ruling in a move that would quickly change the face of the cement industry in the United States and make it more similar to overseas cement industries. Lafarge Corporation, which held minority stakes in two ready-mix concrete companies, soon increased its shares to full ownership. The acquisitions added Bryco Inc., a Texas ready-mix concrete company and its 12 plants and 75 ready-mix trucks, and Jimco, a large ready-mix concrete company in New Orleans. Later in 1988, Lafarge bought Centurion Products Co., a small Pennsylvania company specializing in producing pre-blended colored masonry cement and colored portland cement.

Business was continuing to improve, and Lafarge Coppée had no interest in selling its North American subsidiary, despite an unsolicited bid by a group of anonymous stockholders of $1.47 billion in cash. At the end of 1988 Bertrand Collomb assumed new duties with Lafarge Coppée in Paris and Robert Murdoch, a former summer intern and the current president and COO, was appointed president and CEO.

The company continued to buy, diversifying both vertically and horizontally. In 1989 it acquired seven subsidiaries of the Standard Slag Holding Company, becoming one of the largest aggregate producers in the United States. The next year, it purchased National Minerals Co., a fly ash company in Wisconsin, and Beyer’s Cement Inc., a wholesale cement distributor in North Dakota, acquiring terminals in key cities as well as a fleet of 170 trailers and semi-trailers.

In 1991, despite a downturn in the construction industry, Lafarge Corporation added the Missouri Portland Cement Company and Davenport Cement Company, expanding Lafarge’s presence along the Mississippi River. The purchases included three cement plants, 15 terminals, two quarries, and more than 30 ready-mix, aggregate, and concrete paving operations, and increased Lafarge’s clinker capacity by nearly one-quarter. As part of the transaction, the company also acquired ProChem Technology Inc., a chemical admixture firm based in Denver. In mid-1992 Robert Murdoch resigned, and Michel Rose, a Lafarge Coppée executive, assumed the positions of president and CEO.

An Improving Market and Gypsum Wallboard: 1993-96

By 1993, demand for cement was slowing, having fallen more than 11 percent since its peak in 1987. Things were better for domestic producers, after U.S. companies shut out low-priced imports with the implementation, in 1990, of antidumping trade actions against international firms.

Lafarge Corporation reorganized again in 1993, consolidating its operations into three cement regions and three construction materials regions, and began selling off its assets in Texas and Alabama. The plants there were considered too far from their markets and unable to meet profitability objectives, even though two were the company’s lowest cost manufacturing plants.

However, selling its assets was not the only way Lafarge Corporation regained its profitability. By 1994 nearly all of its 15 full-production cement plants were increasingly recycling industrial byproducts to use as raw materials in making their cement. One plant in British Columbia, for example, used mill scale from a local manufacturer for 90 percent of its iron requirements. The mill scale cost $2 (Canadian) per metric ton, whereas magnetite, which the plant used to use, cost $40 per metric ton. Other alternative materials included glass bottles for silica; waste calcium carbonate, which provided pure lime, from pulp mills; sand from foundries; and fly ash from coal-burning power plants.

By mid-1994 the company’s sales were up more than seven percent, and net income had risen 71 percent. In 1995 Lafarge bought National Portland Cement’s cement grinding plant in Florida, followed, in 1996, by the acquisitions of Tews Company, Wisconsin’s largest ready-mix concrete producer, and two gypsum wallboard plants from Georgia Pacific. With the latter purchase, the company established Lafarge Gypsum to produce and distribute wallboard and related products. Also in 1996, president and CEO Michel Rose returned to France for a new position with Lafarge S.A., and John Piecuch, who joined Lafarge Corporation in 1987, was appointed president and CEO.

1997 to the Present

Lafarge Corporation continued to make acquisitions, including 125 North American operations that were part of Lafarge S.A.’s purchase of the British construction materials company Redland PLC. These increased the company’s annual aggregates sales by 75 percent and its ready-mix concrete sales volume by one-third and added more than six million tons of asphalt sales annually.

Through its Canadian subsidiary, the company purchased another wallboard manufacturing plant and gypsum quarry, a manufacturer of joint compounds, and, in January 1999, announced it would build a fourth wallboard plant, a $90 million facility in Kentucky. The company continued construction of two state-of-the-art cement plants, replacing older plants in Kansas City, Missouri, and Richmond, British Columbia, and acquired a cement plant in Seattle, Washington.

The company’s 1998 acquisitions, combined with the strong construction economy, boosted net income of 29 percent over the previous year, and revenues of 33 percent to $2.45 billion, a new high for Lafarge Corporation. In the United States, low interest rates were expected to support high levels of building activity. That situation, along with the 1998 federal highway bill, and its six-year, $215 billion in transportation funding, could expect to keep Lafarge Corporation busy producing its cement, aggregates, concrete-related materials, and gypsum wallboard.

Principal Subsidiaries

Lafarge Canada Inc.; Cement Transport, Ltd.; Friday Harbor Sand & Gravel, Inc.; International Atlantins Ins. Co.; National Mineral Corp.; Systech Environmental Corp.; Walter N. Handy Co., Inc.