Fauji and Askari Cement merged two years ago. How has the merger worked out?

Mergers and acquisitions are an easy way to create economic value for shareholders in theory, but notoriously hard to do in practice. The merger of the two military-owned cement companies in Pakistan – Fauji Cement and Askari Cement – should have been a relatively easier one to manage, and in many ways, it has been successful in achieving its aims of generating shareholder value.

The simplest way to measure the success or failure of a merger – at least in the case of publicly listed companies – is whether the market value of the company in question increased. On that score, the merger of Fauji Cement and Askari Cement is unquestionably a success. On the eve of the merger, Fauji Cement’s market capitalization – the total value of the company – was Rs17.7 billion, and it paid Rs27.3 billion to acquire Askari Cement in an all-stock deal, implying a combined value of Rs45 billion at the close of the transaction. The market capitalization of Fauji Cement as of the close of trading on Friday, October 18, 2024 was Rs70 billion, implying that the company is currently valued at considerably higher than the entity at merger.

If one were inclined to be uncharitable, one might argue that stock prices alone are not a great way to determine whether a merger was accretive (created value) or dilutive (destroyed value), since stock prices can be volatile and dependent on the vicissitudes of the market that go beyond just the intrinsic value of the company itself.

A better set of metrics might be to explore the operational performance of the company to see if it is doing better than its combined predecessors, since that would judge the company on whether it achieved the core drivers of value in the first place: increasing revenue, reducing costs, improving overall profitability. Even on that set of metrics, it is hard to argue that the Fauji Cement merger with Askari Cement was anything other than a success.