The two European giant firms of the construction materials might not continue at all. There seems to be a misunderstanding between Holcim and Lafarge, the companies acknowledged on Monday.
Holcim, based in Jona, Switzerland, and Lafarge, based in Paris, had announced in April that they would merge on equal terms to form the world’s largest cement and construction materials company. The companies are giants in the industry, with combined sales last year of nearly $33 billion and work forces totaling 131,000 employees.
Holcim has expressed reservations lately with the all-share deal, under which the two companies were to swap their stock on a one-for-one basis. Since the agreement was finalized in July, Holcim’s business has performed better than its French partner’s, and the Swiss company began demanding that fewer of its shares be exchanged for Lafarge stock.
It was also demanding a larger role in running the combined group, including claiming for itself the position of chief executive, a role that had previously been promised to Bruno Lafont, the Lafarge boss.
As recently as Friday, teams from the two companies were holding talks near Charles de Gaulle Airport outside Paris, and it was “business as normal,” according to a person close to Lafarge, who was not authorized to speak publicly on the company’s behalf.
But on Sunday, the person said, Lafarge management was stunned by new demands in a letter from Holcim’s chairman, Wolfgang Reitzle, for the Swiss company to obtain a larger leadership role than was initially agreed upon. That would have changed the deal “from a merger of equals into a takeover without a premium,” the person said, something Lafarge could not accept.
Despite the deterioration in the negotiating climate, the person said, the companies hope to reach a deal by Thursday. Shareholders of CRH, an Irish company that planned to acquire 6.5 billion euros, or $6.9 billion, worth of Lafarge-Holcim assets to smooth the path to regulatory approval, are scheduled to meet that day. A failure to meet a Thursday deadline would most likely create new delays for a merger agreement.
Press officers for the companies declined to comment.
Adding to Holcim’s concerns is the fact that the franc has appreciated substantially against other currencies since the terms were agreed upon, further reducing the value of Lafarge’s euro-based shares when translated into francs. The Swiss central bank on Jan. 15 dropped its commitment to hold the euro to a minimum of 1.2 francs, sending the Swiss currency soaring. On Monday, the euro was worth 1.06 francs, down 12 percent from the start of 2015.
In a deal of such complexity, requiring the approval of at least a dozen international antitrust regulators, those disagreements are now looming large, endangering deadlines that once looked attainable.
Holcim’s board “has concluded that the combination agreement can no longer be pursued in its present form,” it said in a statement on Monday, “and has proposed to enter into negotiations in good faith around the exchange ratio and governance issues.”
Lafarge responded in a separate statement that, while it “remains committed to the project that it intends to see implemented,” it was willing to discuss only the exchange ratio and would “not accept any other modification of the terms of the existing agreements.”
Holcim said the merger, which was to have faced a shareholder vote at its annual general meeting next month, would not appear on the agenda of that meeting, suggesting an indefinite delay to completing the deal.
The delay is also necessary, Holcim said, because it wants to share with its shareholders information about pending antitrust decisions by regulators in Europe, India and the United States. Holcim also expressed frustration with “delays in the social process in France,” a reference to obligatory negotiations with French unions about possible job losses.
Lafarge shares fell nearly 5 percent in midday trading in Paris. Holcim shares were down slightly in Zurich.