Holcim Ltd. and Lafarge SA brought their planned merger back from the brink of collapse, agreeing on new terms and management changes to pave the way for the creation of the world’s biggest cement company.
The companies failed to answer a contentious question – who will lead the combined entity, which will value France’s Lafarge at $30.2 billion. Lafarge chief Bruno Lafont, who had been designated as chief executive officer of the merged company, will now become co-chairman, after Holcim managers said in the past week they didn’t want him as CEO.
The tensions underscore the difficulties of bringing together two companies in what was announced almost a year ago as merger of equals. The terms and management lineup became a sticking point after Lafarge’s results lagged its Swiss peer. The terms are now more favorable for Holcim investors, who will now pay less in stock for Lafarge.
Both companies have operations in the Buffalo Niagara region.
A merger of such a size “doesn’t come without tension sometimes,” Lafont told reporters. “My attitude since Sunday is to show that men must not block the implementation of this merger.”
Lafont will now become co-chairman of the new entity alongside Holcim Chairman Wolfgang Reitzle. Holcim will pay 0.90 of a share in return for one share of Paris-based Lafarge, instead of the original one-to-one ratio, valuing Lafarge at about 65.40 euros a share.
The combined company will have a market value of about $47.6 billion based on Friday’s price for Holcim stock and the number of shares that will be outstanding after the transaction closes.
Sanford C. Bernstein analyst Phil Roseberg said it’s not certain whether the new agreement will rescue the deal.
“It’s not the end of the story,” he said in a note. “The fate of the merger still rests with Holcim’s shareholders. The boards have secured an adjustment, but is this enough to convince shareholders?”
For the merger to go through, at least two-thirds of Holcim shareholders still must approve a capital increase.
Holcim, in a letter to the French company on Sunday, had demanded a bigger stake and questioned the ability of Lafont to reach savings targets after its business outperformed Lafarge since the deal to create the world’s biggest cement maker was announced in April. Lafont and Holcim managers also clashed over issues including leadership style and strategy, people familiar with the situation have said.
A new CEO will be proposed to both boards in coming weeks, Lafont said. A Lafarge candidate for CEO has been identified, according to people familiar with the matter. Beat Hess, a high-profile Swiss executive and board director at Holcim, will be vice-chairman.
Holcim and Lafarge have predicted the merger will lead to cost savings of 1.4 billion euros annually, giving them an advantage over rivals as a global recession eroded demand for building materials and forced some kilns to run at a loss.
The decision to create a cement giant pushes the boundaries of mergers in an industry that had already seen heady, debt-fueled acquisitions in the run up to the financial crisis in 2008. Following the initial agreement last year, Holcim came under pressure from investors who increasingly saw the terms of the deal as unfavorable to them.
“The breakthrough was only possible because all participants considered the interests of the new company to be more important than personal ambitions,” Holcim’s biggest shareholder, Thomas Schmidheiny, said in a statement, adding that he’s happy with the outcome. “It is a strong sign that the industrial logic of the merger and the related long-term perspectives succeeded.”
The deal, with the renewed support of “certain key shareholders of both companies” should be completed in July, the cement makers said.
The dispute over leadership by the 58-year-old Frenchman Lafont shows how a clash of personalities can become the biggest liability in mergers. The gum-chewing, cigar smoking Lafont and soft-spoken Holcim CEO Bernard Fontana, who was due to remain in his post until the merger completion, have disagreed on key issues from the start, a person familiar with the matter said.
“A face-saving position has been found for Mr. Lafont, but the boards couldn’t find a new CEO within the ranks of Lafarge,” said Sanford C. Bernstein’s Roseberg. “They will now have to look outside, which is probably what they should have done in the first place.”