Holcim and Lafarge agree on new merger terms

Both parties agreed on a new exchange ratio of nine Holcim shares for ten Lafarge shares Keystone

Cement industry giants Holcim of Switzerland and Lafarge of France have cleared the final stumbling blocks and agreed new terms for a planned CHF40 billion ($40.5 billion) merger, the largest in Europe since Glencore and Xstrata joined forces in 2013.

In a joint statement issued from Zurich and Paris, both parties said they had agreed on a new exchange ratio of nine Holcim shares for ten Lafarge shares. Originally the “merger of equals” was meant to be based on a 1-to-1 exchange of shares but Holcim had largely outperformed Lafarge since the plan was first announced last April.

The Swiss National Bank’s decision in January to stop defending the franc complicated matters further, when the proposed 1-to-1 ratio began to weigh more heavily in favour of Lafarge shareholders as the franc strengthened against the euro.

Plans to create a mega cement, concrete and aggregates company, with projected combined sales of more than CHF40 billion were also stalled by a disagreement over who would lead the new combined group.

Holcim was unhappy with the proposal that Lafarge CEO Bruno Lafont would lead the new entity.

As recently as Monday, Holcim issued a statement saying that the agreement could no longer be concluded in its current form, adding that its board had “proposed to enter into negotiations in good faith around the exchange ratio and governance issues”.

A new CEO for the combined group, to be proposed by the Lafarge Board and accepted by the Holcim board, will be appointed when the transaction is completed, the statement said.

Current chair of the Holcim board Wolfgang Reitzle and Bruno Lafont will be non-executive co-chairmen of the board. 

The proposed merger is almost twice the size of the next biggest Swiss mergers and acquisitions (M&A) deal announced last year.

In total, 604 M&A deals were put on the table in 2014 with a combined value of CHF175.8 billion. This compares to 580 deals in 2013 valued at just CHF20.8 billion, according to Ernst & Young.