Cracks in a Record Cement Merger

Are shareholders digging a big hole for themselves?
  • Why it matters

    Why it matters

    The merger would create the world’s largest building materials producer, but could collapse if Holcim shareholders aren’t offered more cash.

  • Facts


    • Holcim and Lafarge announced they would merge last April in a 1:1 share exchange.
    • The combined company will have joint sales of about €30 billion ($32.3 billion).
    • Holcim has been performing well since April and some shareholders now want a bigger slice of the pie.
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After a successful career on the BMW management board and as head of the Linde Group, an industrial gas producer, Wolfgang Reitzle was probably hoping for a quieter life when he took the role of chairman at the merged cement giant, LafargeHolcim.

But now Mr. Reitzle has found himself in the middle of a crisis management situation as the billion-euro merger of the two largest producers of building materials teeters dangerously on the edge.

A key shareholder of Switzerland-based Holcim, whose performance has perked up since the merger was announced last April, is protesting details of the deal. According to the Zurich-based newspaper Sonntagszeitung, Swiss industrialist Thomas Schmidheiny, Holcim’s majority shareholder with 20 percent, is demanding the deal be sweetened for Holcim owners.

A spokesperson for Mr. Schmidheiny didn’t deny the report, saying simply, “The industrial logic of the merger is undisputed.” Holcim responded with a cryptic message that the company “had taken note of the reactions of a certain Holcim stockholder.” Meanwhile, Lafarge made no comment.

A change in the conversion rate is considered unlikely, which would mean the merger agreement must be renegotiated.

Sources close to Holcim and Lafarge say that options are being explored to make the highly complex merger, which is primarily designed to reduce costs at both firms, more palatable to Holcim owners. The simplest solution would be to pay a special dividend.

The merger between Holcim and Paris-based Lafarge will create the world’s largest cement producer with annual joint sales of about €30 billion ($32.3 billion). The deal is structured as a 1:1 share exchange, which would give Holcim owners 53 percent of the merged group and Lafarge stockholders 47 percent.

The problem is that in the year since the merger was announced Holcim’s business has done better than Lafarge’s, especially in the fourth quarter, allowing Holcim to increase its pre-tax margin by 0.9 points to 20.7 percent. Lafarge’s margin, in contrast, fell almost 11 points to 14 percent.

“Holcim lately has been showing a better operative performance,” says Rocchino Contangelo, a fund manager at Zurich-based Swisscanto, which owns around 0.2 percent of Holcim’s outstanding shares. “The Holcim shareholders are supposed to be compensated for that.”

At the moment, the Holcim share price is about seven percent higher than Lafarge. “Thus, the market rate reflects a conversion ratio of 55 to 45,” say analysts at Zürcher Kantonalbank. Mr. Contangelo also considers this an equitable balance.

Sources in Swiss financial circles say the second-largest Holcim shareholder, Russian Eurocement Holding, which holds just under 11 percent, is also demanding improvements to the merger deal. Eurocement refused to comment.

Mr. Reitzle, already chairman of Holcim, now must try to keep his shareholders on board and on track to approve the merger in late April or early May. Yet without changes to the deal, the necessary two-thirds majority appears to be in danger.

A change in the conversion rate is considered unlikely, which would mean the merger agreement must be renegotiated, something a source close to the proceedings called “opening up Pandora’s box.”

“A special dividend appears to me to be the most elegant option to balance out the difference in value,” said Mr. Contangelo. Currently, Holcim is worth about €4 billion ($4.3 billion) more on the market than Lafarge.

Investors are betting Mr. Reitzle won’t disappoint Holcim shareholders. Holcim shares were the day’s winner in the Swiss Market Index on Monday. Lafarge shares, on the other hand, fell.


The author is Handelsblatt’s Switzerland correspondent. To contact the author:

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