History’s Largest Cement Merger May Still Crack
On Sunday afternoon a week ago, Bruno Lafont, the chief executive of Lafarge, took a call from Wolfgang Reitzle, the chairman of Swiss cement company Holcim seeking to merge with its French rival. He had bad news.
Reitzle had just sat through a board meeting at which the panel voiced its increasing dissatisfaction with the merger terms, not least with Lafont’s future role as leader of the combined entity. A letter had been drafted demanding far-reaching changes, including his scalp.
Lafont was stumped. Just two days earlier, teams from both companies were still poring over the merger’s progress in meeting rooms at Roissy airport near Paris.
While the underperformance of Lafarge versus Holcim in recent months hadn’t escaped anyone’s attention, the Lafarge group wasn’t prepared for this.
With the Swiss going on the offensive via a letter that questioned Lafont’s credentials, the creation of an industry leader, the pinnacle of his career, risked crumbling.
The demands from Switzerland exposed the rift separating the two companies. The deal, built on a notion of equality less than a year ago, had rapidly descended into personal animosities and a widening gulf between Holcim and Lafarge.
The 1:1 share-exchange ratio turned into a disadvantage for Holcim, which has outperformed Lafarge, on average, in sales, profit and cash from operations since the combination was announced last April. Yet the French company stood to be the bigger loser if the deal fell apart as it would face increased competition from its Swiss rival.
This story is based on off-record interviews with people directly involved in the negotiations, who asked not to be identified speaking about confidential proceedings. Spokesmen at Lafarge and Holcim as well as CRH, a builder tied to the deal, declined to comment beyond publicly available statements.
At least four billionaire stakeholders from Switzerland to Belgium, Egypt and Russia, had large amounts of money at stake, and senior managers and shareholders also had a lot riding on the deal.
Thomas Schmidheiny, the single biggest Holcim shareholder with a 20 percent stake, sought to smooth ruffled feathers at the Sunday meeting, while other board members insisted on pushing ahead with the letter.
A sense of unity had been equally absent in the executive suites of Lafarge and Holcim, where the leaders of both companies failed to get along with one another from the get-go.
Lafont considered himself the natural choice for the enlarged group, even if it meant relinquishing the combined titles of chairman and chief executive, a dual construction that is rare in Switzerland.
The Frenchman has a reputation as an exacting boss who visits plants regularly and maintains close contact with managers.
Lafont remained defiant. The French side lurched into action. Lafont himself called an emergency board meeting on Sunday night. There in Paris, the gathered executives studied the demands in greater detail to plot their response.
At the same time, hundreds of miles west of Paris in Ireland, Albert Manifold was growing nervous.
The chief executive of Irish building-materials company CRH had staked his company’s future growth on the deal going through, hoping to pick up lucrative pieces that the duo was forced to sell to appease competition authorities.
Now, with an agreement teetering on the verge of breakdown, CRH’s grand ambitions stood on shaky ground, days before shareholders were set to vote on the deal.
Time was running out if both sides wanted to salvage the merger and see through the asset disposal.
On Monday morning before trading started in Paris, Lafarge put out a brief statement signaling a willingness to explore a revision of the exchange parity. It wouldn’t, however, amend other terms, the French side made clear.
The Lafarge camp now faced the choice of digging in and watching the merger fail, or finding a new role for Lafont that would still keep the running of the company in the hands of the French.
There was no obvious fallback candidate that Holcim would easily accept.
Reitzle enjoyed the backing of the Holcim board. Lafont agreed to consider the proposal.
The French executive knew that he couldn’t insist on the chief executive post. By Thursday he had come around. Assuming that it would remain a merger of equals, Lafont said he’d be ready to make his contribution in the most useful way.
By that time, CRH had held its shareholder meeting in Dublin without any major hiccups, with the chief executive laying out an alternative path should the Holcim-Lafarge merger fall through.
Executives, advisers and lawyers shuttled between Zurich, London and Paris, giving meaning to the merger’s code project name “cities.”
As darkness fell over Paris, the two sides assembled in a nondescript city office to preserve an air of neutrality and drafted a new agreement: Holcim would give 0.90 of a share in return for one share of Lafarge, instead of the original one-to- one ratio, valuing the French company at 28.2 billion euros ($30.2 billion).
Lafont would become co-chairman, and the boards also agreed to leave out the contentious point of who would be chief executive as they drafted a shortlist.
After midnight, the two companies signed off on the new terms. A few handshakes were exchanged, with just a few hours to spare before Holcim and Lafarge announced their revised accord to the public, keeping the merger alive — for now.
Source: The Jakarta Globe