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Lafarge cementing Slovak position

As the government continues to hone its programmes to attract lucrative foreign direct investment to Slovakia, foreign companies continue to trickle in.
One company currently on the move in Slovakia is the French-based construction supplier Lafarge Group. Having been interested in the Slovak market since 1994, the firm presently aspires to gain a stronger foothold in Slovakia to complete a network of plants throughout central and eastern Europe.
Their most recent undertaking has been the creation of a joint stock company, Lafarge Slovakia, scheduled to be officially established in April. This currently small (5 employees) Bratislava-based acquisition company has big plans to buy companies involved in the production of gypsum, limestone and construction materials.


Lafarge Slovakia's Marián Kolník (centre, wearing glasses) listens to President Rudolf Schuster address French investors last October.
photo: Courtesy Slovak-French Chamber of Commerce,

As the government continues to hone its programmes to attract lucrative foreign direct investment to Slovakia, foreign companies continue to trickle in.

One company currently on the move in Slovakia is the French-based construction supplier Lafarge Group. Having been interested in the Slovak market since 1994, the firm presently aspires to gain a stronger foothold in Slovakia to complete a network of plants throughout central and eastern Europe.

Their most recent undertaking has been the creation of a joint stock company, Lafarge Slovakia, scheduled to be officially established in April. This currently small (5 employees) Bratislava-based acquisition company has big plans to buy companies involved in the production of gypsum, limestone and construction materials.

Depending on the worth of each acquisition, explained Lafarge Slovakia Director Marián Kolník, the company planned to pour as much as 40 million Deutsche marks ($20 million) into companies it was interested in with an equal amount to be invested on top of the purchase price. Kolník expected acquisitions to begin within two years.

The French cement giant already has stakes in several Slovak ventures, including 50% in the roofing company Bramac Ivánka pri Nitre and 27% in Lafarge Betón, which is a minority shareholder in Považská cementáreň Ladce.

But Slovakia has not always been a land of opportunity for Lafarge. The French firm has complained of insufficient protection that Slovak law affords to minority shareholders, and has been involved in litigation battles over decisions taken during Mečiar-era state privatisation.

The firm's experience with Považská cementáreň has frustrated Lafarge's hopes the most. Kolník explained that when his company was looking to purchase Považská cementáreň in 1994, the Mečiar government sold the company directly to Portland cement, a firm created by management and employees of Považská cementáreň, instead of selling the company through a tender which was the agreement under the previous government.

According to Kolník, his company received a raw deal on the sale. "In total, our offer was about five to six times better regarding the investment conditions and the purchase price than the offer from Portland cement," he said.

Lafarge took its complaint to the current government, lobbying Deputy Prime Minister Ivan Mikloš and President Rudolf Schuster during the Davos economic summit in January held in Switzerland. Both Mikloš and Schuster told Lafarge to take their case to the Slovak courts, promising support if Slovak laws had in fact been broken.

Lafarge did just that, and now hopes that if it wins the case, the privatisation process of Považskej cementárne would restart at ground zero. The implications of such a victory, the firm said, were far-reaching. "We would be the first private company to be successful in such a case," said Kolník. "We are not the only one in this situation, behind us are another 60 or 70 projects who are looking for the same thing."

Despite the early disappointment, Lafarge Group didn't give up in its quest to own Považská cementáreň. The company ended up purchasing stakes in Považská cementáreň from a small shareholder in 1998 and 1999, and presently owns a 27% share.

But 27% is as much as Lafarge was able to acquire. Due to current laws governing minority shareholder rights (which give significant power over management decisions only to shareholders that hold at least a 34% stake), Lafarge had no say when Portland cement sold a 70.43% share of the company to the German cement giant Berger Holding for 274.1 million crowns ($6.5 million) in August 1999.

Kolník said that Lafarge had been against the sale, feeling that Berger had had an inside track on the deal due to Portland cement's long-time trade relations with Berger. Berger Holding's Managing Director Erwin Gessl was on a business trip this week and was unavailable for comment.

Along with Kolník, Jack Pillian, acting trade commissioner at the French Embassy, saw minority rights as something that needed to be addressed for the benefit of many foreign investors around the coutry. "Minority shareholder rights is a general problem affecting business in this country," he said.

Help for Lafarge and others may be at hand. Vladmír Tvaroška, advisor to Deputy Prime Minister Ivan Mikloš, confirmed that an amendment on the securities law was presently being prepared that would affect minority shareholder rights.

"It will be huge amendment regarding the capital market in Slovakia, and definitely one of the most important issues are minority shareholders' rights," he said.

Tvaroška wouldn't comment on the specific issues on minority shareholders to be addressed by the new legislation. "While the law is being debated, things can change every day," he said. Tvaroška also couldn't predict when the legislation might be passed, but said that it wouldn't be soon.

Kolník said Lafarge's goal of gaining a strong foothold in Slovakia remained a top priority for headquarters, regardless of the problems encountered. The company has branches in Russia, Ukraine, Romania, Moldova, the Czech Republic, Germany and Austria. Hungary and Slovakia were the only areas in the region where there had been no Lafarge acquisition, he said.

"Lafarge is not fazed by these types of problems," he said. "Privatisation problems are not enough to cause us to leave. Slovakia is now the highest priority at headquarters regarding central Europe."

Based in Paris, Lafarge Group is the world's second largest producer of construction materials with divisions in cement, aggregates and concrete, roofing, gypsum and speciality products. The company employs 71,000 people in 70 countries world-wide and had $10.5 billion in sales for 1999.

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