Holcim Threatens to Walk Away From $39 Billion Lafarge Merger
NEW YORK (The Deal) -- Swiss cement maker Holcim Ltd. has told Lafarge SA that the companies' $39 billion merger of equals will have to be renegotiated to give Holcim shareholders a greater stake in the combined group and a bigger say in management.
"The Holcim board of directors has concluded that the combination agreement can no longer be pursued in its present form, and has proposed to enter negotiations in good faith around the exchange ratio and governance issues," Holcim said on Monday.
Lafarge said that it "remains committed to the project" and is willing to renegotiate the equity exchange ratio but refused to ponder any other changes to the merger terms.
Holcim and Paris-based Lafarge announced plans last April to merge the bulk of their operations to create a cement maker with about €32 billion ($33.7 billion) in sales and about €6.5 billion of Ebitda, a measure of profitability. The deal proposed handing Holcim shareholders about 53% of the combined group, but the terms have appeared problematic for months as Holcim's sales and earnings outstripped those of its partner.
Holcim is now offering a swap ratio of 0.875 of one of its shares for each Lafarge share, compared with its initial agreement to a one-for-one share swap, according to a person with knowledge of the situation. Lafarge has countered with an offer of one share for 0.93 of a Holcim share.
Holcim also wants to install more of its executives in management roles at the new company, though it was not immediately clear in which positions. Lafarge CEO Bruno Lafont had been nominated as CEO of the combined company.
"There has been movement in the share price and of course, with the deal progressing, that leads to pressure," said a person with knowledge of the situation. "The partners should be open to some flexibility but there is a contract, and efforts to change the terms of that contract, if not agreeable to both parties, is a breach of the agreement."
Holcim and Lafarge agreed to a €350 million break clause in the event that either party pulled out of the deal.
A failure of the merger would also end Irish building materials maker CRH Plc's (CRH) - Get Report plan to pay €6.5 billion for cement assets owned by Holcim (HCMLY) and Lafarge (LFRGY) . CRH agreed in February to buy 24 cement plants that the partners needed to sell to win regulatory approval for their merger. CRH has already raised €1.6 billion to help fund its acquisition of the assets.
The Irish company's shareholders are scheduled to vote on the deal on March 19, making that date the most immediate deadline for Holcim and Lafarge to iron out their differences.
The merger of Holcim and Lafarge had been expected to deliver €1.4 billion of cost savings over three years, with about €466 million realized in the first year. The bulk of those savings, €1.2 billion, are expected to come from consolidation of operations and from increased scale.
Holcim said on Monday that its annual general meeting, scheduled for April 13, will not address topics related to the merger as antitrust clearance for the deal is still pending in the U.S. and India.
Shares in Holcim traded Monday at Sfr74.45 ($74.11), down Sfr1, or 1.3%, from their Friday close. Lafarge shares traded at €62.14, down €2.84, or 4.4%.
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