‘Mergers of equals’ are rarely satisfactory and never truly equal
Outlook: Holcim and Lafarge deal conforms to many of the breed’s worst features
James Moore is the Independent's Associate Business Editor and writes the Outlook City comment column from Tuesday to Friday. He also has a keen interest in disability issues and when not attempting to further injure himself playing wheelchair basketball.
Tuesday 08 April 2014
It’s received wisdom that the markets do not like deals branded as “mergers of equals” – and with good reason.
When it’s clear who’s predator and who’s prey, the winner’s shareholders pay up to get the guys they have backed at the top, the owners of the loser get a bung.
When the parties come together as “equals” what you get tends to be hastily bolted together, with the big jobs divvied up not on the basis of perceived merit or best fit, but as a result of political considerations.
Bosses preach “shared values”, but in practice it rarely works out like that.
The merger between Holcim and Lafarge, the building materials groups, conforms to many of the breed’s worst features.
The board has seven members from each side. Switzerland’s Holcim gets the chairman and the finance director; France’s Lafarge the key position of chief executive. The company will be listed on both home exchanges, but there will be cuckoo cocks crowing in the Swiss HQ of Holcim, where the combined group will be based (tax, anyone?).
Don’t weep for the French. When job losses are announced – and they’re being coy about that – there won’t be many there.
So what lies behind the surge in the share prices of both? Perhaps the reason investors like the deal – beyond the talk of €1.4bn (£1.1bn) in synergies – is that this is all about competition and capacity, and reducing both.
The industry faces an excess of the latter, not helped by the fact that the predicted growth coming from so-called emerging markets hasn’t (so far) come up to snuff. With the two sides having a formidable burden of debt they need this deal.
Both have powerful investors. In the case of Lafarge there’s Groupe Bruxelles Lambert (GBL) which has a 21 per cent stake, plus the Egyptian tycoon Nassef Sawiris with 16 per cent. The Swiss businessman Thomas Schmidheiny and Russia’s Filaret Galchev (who knows a thing or two about monopolies) control a total of 31 per cent of Holcim. But they know the game that’s afoot.
So it’s over to the competition authorities. The merged group’s chief executive elect, Bruno Lafont, says he will approach them in a spirit of “co-operation”, which is hilarious given the decade or so that his Lafarge spent battling a €250m fine over plasterboard pricing.
He’s also lining up a rash of disposals.
More may be needed, but the way this deal has been stitched up indicates that there has been a lot of work done in rooms that would have been smoke-filled a couple of decades ago.
As Glencore/Xstrata proved a while back, where there’s a will to get a deal done there’s usually a way to buy the watchdogs off, figuratively if not literally.
The only thing which may prevent this one from completing is if it falls apart under the weight of the cement needed to make it stick. Don’t rule that out.
Still calling last orders in Punch Taverns
Will someone put Punch Taverns out of its misery? Apparently not, as it has secured yet more time to pursue negotiations with debt holders, who have been chewing the fat about recapitalising for years.
It’s true that every few months one of the group’s top people will warn about Punch facing last orders if they don’t sign up to the latest “final” deal. But the fact that there is a profitable business which could be on to a winner if the mess were sorted out, appears not to concern anyone. You have to pity the people trying to make an honest buck on the ground while the City shows itself in its least flattering light.
Ah, but what’s that I hear you say? About surely the banks getting tired of watching those involved fight like a group of drunks on a Friday night and calling in the administrators to put them in a cell so that they can sleep it off? It’s not as if Punch doesn’t have an attractive property portfolio that could be sold should the need arise.
Well here’s the problem: an administration wouldn’t change much. The debt structure is so byzantine that you’d have exactly the same situation, but with an administrator playing referee for a fat fee.
Banks are being a bit more circumspect these days about pulling the plug, amid the ongoing controversy over Royal Bank of Scotland’s Global Reconstruction Group.
Looks as though we’ll be in the bar chewing the fat on this one till Godot turns up.
Watchdog attempts to bite back after making a mess
The financial services industry has spent the last few days basking in schadenfreude as its regulator has floundered.
Bullets have been flying in the direction of the Financial Conduct Authority’s HQ in Canary Wharf after the hapless Clive Adamson blew the gaff on a planned review into millions of old life insurance policies, creating a minor tsunami in the markets until an official clarification was issued.
Now the watchdog has thrown a fastball at organisations ranging from financial advisers to private banks who are failing to spell out how much they are charging consumers and what they do for the money.
Mr Adamson – him again – has also warned that he could send in the heavy mob from enforcement if they don’t up their game. He’ll have to do better than that to restore his reputation. But the FCA’s findings demonstrate that however bad its failings, those of the industry it polices are far worse.
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