Cement merger gets back on track

Holcim Ltd and Lafarge SA reached an agreement to adjust merger terms in an effort to salvage their bid to form the world’s biggest cement maker, leaving open the contentious point of who will be chief executive.

The two companies revised the exchange ratio so that Switzerland-based Holcim will give 0.90 of a share in return for one share of Paris-based Lafarge, instead of the original one-to-one ratio, they said yesterday.

In talks extending into the early hours, negotiators tackled Holcim’s loss of faith in Lafarge chief executive Bruno Lafont and his ability to deliver post-merger savings after his company’s profit and sales lagged behind. Lafont, who had been the designated CEO of the enlarged group, clashed with Holcim managers over issues including leadership style and strategy.

A merger of such a size “doesn’t come without tension sometimes”, Lafont told reporters yesterday. “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. Beat Hess, a high-profile Swiss executive and board director at Holcim, will be vice-chairman. A new CEO will be proposed to both boards “in coming weeks”, Lafont said.

Holcim and Lafarge’s merger to create a cement giant with about €34bn in combined sales pushes the boundaries of M&A in an industry that had already seen heady, debt-fuelled acquisitions in the run up to the financial crisis in 2008. The Swiss company came under pressure from investors who increasingly saw the terms of the deal as unfavourable.

“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 transaction, with the renewed support of “certain key shareholders of both companies” should be completed in July, the cement makers said. Subject to approval, the company will announce a “post-closing scrip dividend” of 1 new LafargeHolcim share for each 20 existing shares.

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.