Holcim Ltd. (HCMLY, Financial) and Lafarge Coppee (LFRGY, Financial) have decided to go ahead with their plans of merging to become the world's biggest cement manufacturer, though merger plans were stalled awhile ago. The companies had last-ditch talks as investors did not favor the deal, citing unfavorable financial returns. Both the companies had faced regulatory obstacles, but now that the merger is happening, more management and financial issues are popping up.
Management reshuffle
The main question now is: Who will become the new CEO of the merged company? Rumors are rife that a Lafarge executive will be given the opportunity to fill in the shoes of the merged entity's CEO. People close to the matter have said that issues about top level management and financial terms have not yet been worked out. Although Bruno Lafont, CEO of Lafarge is resisting to take on the post of co-chairman of the merged company, the two companies have reached an understanding making him the new co-chairman. Wolfgang Reitzle, the current chairman of Holcim, will assist him as a co-chairman. The two companies have disputed the management's post since a long time. Leadership styles suggested by both the companies did not go down well with the significant other. Holcim and Lafarge Board of members conducted a meeting on Wednesday to finalize the new management and the style of leadership. We hope the company has reached a mutual agreement before CRH Plc. (CRH, Financial) buys assets of both the companies. In order to receive a regulatory approval, shareholders of the building-materials business have agreed to purchase assets of both the merging companies valued at $6.9 billion. Bruno Lafant said that a merger this big will surely carry the burden of tensions. He justified his attitude by saying that he is doing so to facilitate the implementation of the merger. Holcim Board director, Mr. Beat Hiss will be the merged company's vice-chairman.
As of now, it is decided that Holcim will give 90 cents for every Lafarge share. Earlier, a return of 1:1 was decided.
Analyst views
Thomas Schmidheiny, Holcim's largest investor, said that he is happy with the decision made. More than personal benefits, people have considered the interest of the merging company, he said. The industrial logic and long-term perspectives have shown a positive effect, Thomas said. Nassef Sawiris, the second-largest investor of Lafarge said that the two companies are mutually agreeing on certain topics and are progressing well as of now. He said along with the main shareholders opinions, the board of both the companies are coming to terms of the merger. The Egyptian billionaire also said that Bruno Lafont and Wofgang Reitzle will bring success to the joint venture.
Outcome of the merger
Both the companies have estimated savings of 1.4 B euros after the merger. Holcim and Lafarge said that the merger will give them a competitive advantage over their competitors as the recent global recession slowed down individual company demand. The recession proved to be a bane for both the companies as consumer demand decreased. It is said that the merger will add 6.8% to existing share value in 2015.
Corporate vision
Holcim, the Switzerland-based company was founded in 1912. With its presence in the building materials market, the company witnessed an operating profit increase of 10.6% or CHF 249 M in 2014. Consolidated net sales fell by 3.% to CHF 19.11 billion for the same time period. On the other hand, Lafarge was established in 1833 and is based in Paris, France. Sales for 2013 was 15.198 billion Euros and EBITDA was 3,102 million euros. The merger will therefore be beneficial to investors at large as it will create a powerful entity. Holcim's marketing strength and Lafarge's edge in innovation is a toxic combination, and the merger should give competitors a reason to worry.
