Arabian Cement said it has entered into potential merger talks with Al Safwa Cement, a key Saudi-based firm owned by El Khayyat Group, Public Pension Authority (PPA) and General Organisation for Social Insurance (Gosi).

The biggest reason for Arabian Cement to go ahead with the merger move is the locational advantage of the manufacturing facilities of both companies and source of raw materials besides the cost savings in SG&A (selling, general and administrative expenses) and relatively lean inventories, according to Al-Rajhi Capital Research.

Besides the overall weak demand environment, another major factor that will work in Arabian Cement's favour is that both companies have common ownership - One of the owners of Al Safwa, PPA is also a stakeholder in Arabian Cement (5.27 per cent).

If the merger goes through, it will result in a combined cement production capacity of 9.2 million tonnes resulting in a market share of 15 per cent, stated Al Rajhi Capital Research in its report.

Arabian Cement has a production capacity of 4.8 million tonnes while Safwa has 4.4 based on Al Rajhi data, it added.-TradeArabia News Service