Cement manufacturers Holcim and Lafarge agreed a year ago to merge, but the €40 billion deal nearly collapsed in a battle over leadership and the deal’s one for one share exchange structure. Over lunch last week, Holcim supervisory board chair Wolfgang Reitzle and Lafarge CEO Bruno Lafont managed to save it.
Mr. Reitzle got a better price for his shareholders through the payment of a special dividend by Lafarge and prevented Mr. Lafont from taking over as sole head of the new group. He must, however, accept Mr. Lafont as co-chair until a new chairman is chosen. In an interview with Handelsblatt, Mr. Reitzle explained how the new co-leadership could work.
Handelsblatt: You wanted to prevent Bruno Lafont from becoming the merged company’s new chief executive. Now you and he will be co-chairmen. How’s that going to go?
Mr. Reitzle: I have always had a good personal relationship with Bruno Lafont and could always discuss all topics openly with him – even in the past days. It is well-known there was friction between him and Holcim managers. That unleashed frustrations, but doesn’t mean Mr. Lafont would not be important for us.
Understandably, the past days created hard feelings at Lafarge, because we wanted a change in future leadership. Such a step is not trivial and leaves marks. Now I need him so that Lafarge employees will continue to support the merger. He has been with the company for more than 30 years and can provide very valuable services. The deal is a victory for both companies.
How will you share the work with the Lafarge CEO? In Swiss corporate law, there are no provisions for co-chairmen.
They will have to make a distinction between legal regulations and effective work distribution. On a purely formal level, I remain head of the supervisory board of directors. Holcim could not eliminate this official position without upsetting the balance of the merger. Lafarge retains the right to fill the CEO position, although we have to agree on the candidate.
In the day-to-day work, however, I will share the tasks with Mr. Lafont. He will not be reduced to maintaining contact with the French unions and government. He did good work in that regard – there was no opposition from the French government to a new headquarters in Switzerland.
Is the double head only a transitional solution?
I haven’t wasted any time thinking about that. We have to start working together first. There are plenty of challenges that we will have to resolve in the coming two or three years.
Such as finding a new CEO. Who will it be?
The past days have shown that we need a candidate who can rally the employees of both companies behind him. A selection process is underway. There are a few candidates at Lafarge whom I would trust with the job, but I can’t name them now.
A special dividend is new. Was it needed to secure the support of shareholders for the merger?
I don’t think a special dividend was necessary to win over shareholders. The dividend was an idea from Lafarge, to signal the confidence we have in the merger. What is important for me is that the special dividend is in the form of stocks and not a cash distribution, because the new group should start with a solid balance sheet and good rating.
The idea behind the planned merger is that we can save a good 30 to 40 percent in future investments, which up to now had gone into expansion and building new plants. With the merger, we are immediately better positioned worldwide and don’t have to build new plants. If we can earn our capital costs, there is nothing wrong with shareholders sharing in these savings in a reasonable manner.
Are synergies of €1.4 billion ($1.5 billion) reachable?
We assume they are but only if both sides work together harmoniously. We can’t afford a battle of cultures.
Isn’t the climate too poisonous?
No, I don’t think so. The tensions of the past few days affected only a small circle of people in both companies. The emotions must first settle down. What helps us is that the business with cement is local. The people who earn the money are sitting in the national operations and are for the most part neither French nor Swiss.
What makes you so confident that the merger will be a great success, after it nearly collapsed?
We have a huge opportunity to achieve something that is unique – to be the undisputed world market leader in cement. You can’t find that in any other industry. And for this merger, we already have agreement from competition regulators of the European Union Commission. Intermittently, the original deal was clearly more advantageous for the other side, and we have brought about a balance again. Now all the participants need to calm down – then we can succeed.
Holger Alich covers the financial sector for Handelsblatt as a correspondent in Switzerland. To contact the author: email@example.com