Daily Management Review

Holcim and Lafarge Merger Deal of €41billion – Back on Path


03/20/2015


Holcim raised objections over the original plan of merger and renegotiated its terms.



The European Cement sector is to witness one of the biggest merger deal worth €41billion between its leading companies of cement, Holcim and Lafarge by settling the differences over financial as well as leadership changes. Now, the deal is being tuned in favour of Holcim, as the Swiss company outshined its French rival Lafarge in terms of business and witnessed relatively higher value of its shares led by strong Swiss Franc.

The two leading cement companies of Europe are progressing to salvage the merger and create the world’s largest cement company. Both the companies are trying hard to save the troubled merger that was initially announced in April. At the time of announcement of the deal, Lafarge CEO Bruno Lafont was reported as the future CEO of the world's biggest cement manufacturing company. But since then there has been increasing dissatisfaction from the Swiss side and they even threatened to walk out of the deal if the issues doesn’t get resolved. 

As both the companies have worked on merger matters, Holcim’s management raised concerns over the capability of a 58 year old Frenchman to combine two different business cultures and to save an amount of €1.4bn in annual cost as promised by both the companies. This will provide the merged identity a competitive advantage over its rivals at the time when world recession has eroded global demand for construction materials. Moreover, Holcim’s value escalated since the merger deal initiated in April, thereby requiring a larger stake for its shareholders in the merged group.

In the beginning of 2015, Lafarge recorded a loss of around €145 million in the fourth quarter previous year due to restructuring of its operation in Iraq and Syria. While the Holcim’s performance surpassed that of Lafarge. Hence, payment of s special dividend was taken into consideration but later this idea was dropped as it would have squeezed out the cash and hampered the credit rating of the combined group.

Moreover Holcim’s financial balance got more weight due to the sudden step taken by Swiss National Bank in January by allowing the Swiss Franc to float thereby sending it climbing against Euro. Hence, the Holcim shares in Swiss Franc, were unexpectedly valued more than Lafarge’s shares. The distrust further intensified in February when Lafarge announced an increase in its dividend despite of weak financial results. But according to Lafarge the increased dividend was announced only in accordance with the merger agreement.

However, Lafarge-Holcim merger was Bruno Lafont’s boldest step meant for boosting Lafarge in the middle of global construction slowdown, specifically in Europe. He thus gained respect from Holcim in successfully overcoming the significant regulatory hindrances for quickly progressing to sell off assets that were creating antitrust issues. Under the new agreement, Holcim, Swiss based cement maker will be giving 0.09 of its shares against evry single share in Lafarge. Moreover, CEO of Lafarge, Mr. Lafont will now take the position of co-chairman of the combined entity rather than becoming its new CEO. He will be sharing the chairman’s role with Wolfgang Reitzle, Holcim chairman.







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