Holcim called a halt yesterday to its merger with Lafarge, pressing the French company to renegotiate the deal terms and putting its plan to create the world’s biggest cement maker at risk.
The deal announced in April 2014 was supposed to combine the firms on an equal basis. However, diverging results, share prices and a Swiss franc surge against the euro have improved Holcim’s position and led its largest shareholder to press publicly for a revision of the agreement.
“The Holcim board of directors has concluded that the combination agreement can no longer be pursued in its present form”, Holcim said in a statement, saying it was ready to talk about both the share exchange ratio and “governance issues”.
Lafarge said in a separate statement it was willing to consider revising the share exchange ratio but not other aspects of the deal, which was unveiled as “a merger of equals”. Lafarge boss Bruno Lafont was due to become chief executive of the merged company but Holcim wants to change the earlier plan, a person familiar with the situation said. A top 10 shareholder told Reuters that the board composition was also an issue, since the original plan to divide the seats equally with seven for each side was no longer fair.
Lafarge shares fell 4.5%, making them the biggest loser on the French blue-chip index, while Holcim fell 1% as the two firms’ positions cast doubt over the deal.
“For us, this leaves the issue of an adjustment or break-up wide open,” wrote Bernstein Research.
“The boards were not nearly as united as we expected. Both sides have taken tough negotiating positions, with some willingness to find common ground on the financial terms but little flexibility on changes to governance,” Bernstein said.
The differences between the two companies came to a head during the transition period in which they were seeking competition approvals globally and selling off assets to comply with various regulators’ requests.
On February 2, Holcim and Lafarge agreed to sell a chunk of their European businesses to Irish group CRH to secure approval for the merger from EU competition authorities.
CRH shares fell 3% yesterday on news that Holcim wanted to renegotiate the Lafarge merger terms. Approvals for the deal are still needed in India, the US and Canada. According to the person familiar with the situation, Holcim has proposed changing the previously agreed 1-1 share exchange ratio to 0.875 Holcim shares for each Lafarge share, confirming a Sunday report from Bloomberg.
Lafarge is said to be planning a counter proposal that would trim its weighting to 0.93 to get the deal done, the person said.
“Lafarge’s board of directors remains committed to the project that it intends to see implemented,” the French group said yesterday.
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