Holcim Wins Better Terms To Get Lafarge Tie-Up Back On Track
Switzerland's Holcim (HOLN.VX) and France's Lafarge (LAFP.PA) have agreed new terms for their plan to create the world's top cement firm, giving unhappy shareholders in the Swiss firm a better deal but leaving a key leadership question unanswered.
While the merger is back on track after a rocky few weeks, the deal could still founder over who will run the combined entity with annual sales of more than 30 billion euros ($32 billion).
After days of intense negotiations, the two agreed Lafarge shareholders would now receive nine Holcim shares for every 10 Lafarge shares they hold rather than the one-for-one ratio agreed when the deal was unveiled in April last year.
The companies also agreed that Lafarge boss Bruno Lafont would no longer become chief executive, taking on instead the role of non-executive co-chairman, alongside Holcim's chairman.
The lack of a decision on a replacement CEO leaves question marks over what tensions remain between the two sides, and Lafont's removal from the role along with the share exchange realignment makes the deal look less like the merger of equals it was presented as almost a year ago.
“This is not enough to secure the deal, and it's not the end of the story,” analysts at Bernstein said in a research note.
Since the merger was announced last April, Holcim investors had watched the companies' relative business performances diverge. A stronger Swiss franc also became a factor, along with questions over Lafont's style and record.
Holcim shares rose 0.99 percent to 76.55 Swiss francs and Lafarge stock was up 2.86 percent at 64.08 euros at 1209 GMT after the revised deal was announced.
BRASH
Lafont's proposed role had become a major sticking point for Holcim, which threatened to abandon the deal on Sunday if the terms were not revisited. The Swiss side questioned his ability to deliver the 1.4 billion euros in promised cost savings and disliked his brash management style, sources have said.
“My attitude since Sunday has been to show that men should not prevent this merger from going through and on the contrary should do everything to make it possible,” Lafont told reporters on a conference call.
Under the revised deal, Lafont will be co-chairman along with Holcim Chairman Wolfgang Reitzle. Lafont is due to propose a new chief executive in the coming weeks, who would then have to be accepted by Holcim's board. A source close to the situation said the plan was for a new candidate to be named before Holcim's annual shareholder meeting on May 7.
Beat Hess, Holcim vice-chairman, will hold the same role on the new board.
The new share-swap ratio means Holcim shareholders would own 55.6 percent of the new group, up from 53 percent previously, and the deal is now expected to close in July rather than June.
RUSSIAN SHAREHOLDER KEY, NEUTRAL CEO?
The companies also said certain key shareholders on both sides had confirmed their support for the revised merger terms.
Thomas Schmidheiny, a former Holcim chairman, heir to its founder and who has a 20.1 percent stake, said he welcomed the new agreement.
“This breakthrough was only made possible because all people involved attached more importance to the interests of the new corporation than to their own ambitions,” he said in a statement.
The position of Russian businessman Filaret Galchev, who owns 10.8 percent of Holcim via Eurocement Holding AG, could be key. He declined to comment on Friday.
Nassef Sawiris, who owns 16 percent of Lafarge, told Reuters on Thursday he backed the deal and was not worried about Holcim shareholders not voting for it.
Minority shareholders in Lafarge, which analysts say have the most to lose if the deal fails, were relieved to see it back on track. One top-20 investor suggested a neutral CEO might work.
“We've been invested in this industry for a decade, so if we get called and asked for our ideas we will give them. There is the French-Swiss thing … perhaps one or two egos,” he said.
“If you saw an American in there, that might be interesting, maybe they could cut through the cultural differences that exist.”
The new company will also pay a scrip dividend of 1 new LafargeHolcim share for each 20 existing shares after completion. Analysts said the aim of this could be as a lock-in bonus for existing shareholders.
Bank advisers to Lafarge are Rothschild and Zaoui & Co. Holcim is advised by Goldman Sachs and and Perella Weinberg.
REUTERS