A photo taken on April 7, 2014 shows CEO of the world's biggest cement maker, French Lafarge, Bruno Lafont, right, and Rolf Soiron, Chairman of the Board of Directors of its Swiss rival, Holcim, posing before a press conference in Paris.FRANCK FIFE/AFP / Getty Images
Holcim Ltd. and Lafarge SA are progressing in last-ditch talks to salvage their merger to form the world's biggest cement company, said people familiar with the matter.
A preliminary agreement on adjusted financial terms and leadership changes could be reached as early as today, according to the people, who cautioned that talks may drag on longer or yet fall apart.
The two companies are discussing a revised exchange ratio where Holcim would give about 0.90 of a share in return for one Lafarge share, instead of the original one-to-one ratio, said the people, who asked not to be identified because talks are private.
The companies have reached a preliminary understanding to make Lafarge CEO Bruno Lafont co-chairman of the new entity amid growing resistance to him taking the top job, they said. Another Lafarge executive is likely to be chosen as the new CEO of the combined entity instead, they said. Lafont would be co-chairman with Holcim Chairman Wolfgang Reitzle, they said.
Holcim has been questioning Lafont's ability to reach savings targets after it outperformed its French partner on everything from sales to profit since the deal was announced in April last year. Lafont and Holcim managers have also clashed over issues including leadership style and strategy, according to the people.
The boards of both companies met yesterday to discuss the compromise, they said.
Shareholders of Ireland's CRH Plc, which agreed to buy €6.5-billion ($6.9-billion) in assets that Holcim and Lafarge need to sell for regulatory approval, today approved the purchase.
The building-materials supplier, that's tied its global ambition to the completion of the deal, has a 'Plan B' if the Holcim-Lafarge merger falls through and could buy other assets, CEO Albert Manifold told reporters in Dublin.
CRH is in "close dialogue" with Holcim and Lafarge and spoke to their representatives earlier today, the CEO said, adding that he's confident the merger will happen.
Lafarge rose as much as 1.3 per cent in Paris, giving it a value of €18-billion, while Holcim gained as much as 1.7 per cent in Zurich, lifting the market value to 25 billion Swiss francs ($25-billion). CRH added as much as 1.6 per cent in Dublin.
The dispute over leadership by the 58-year-old Frenchman Lafont shows how a clash of personalities can become the biggest liability in mergers. The gum-chewing, cigar smoking Lafont and the soft-spoken Holcim CEO Bernard Fontana, who was due to remain in his post until the merger completion, have disagreed on key issues from the start, a person familiar with the matter said earlier this week.
Holcim and Lafarge have predicted the merger will lead to cost savings of €1.4-billion annually, giving them an advantage over rivals as a global recession eroded demand for building materials and forced some kilns to run at a loss.
If the terms of the deal change to a 0.90 to 1 ratio, it would turn the deal value positive in 2014 and 6.8 per cent more earnings accretive in 2015, according to Bloomberg Intelligence.