Cracks in $44bn deal puts Tarmac sale in doubt

If the deal collapses, plans to sell the UK business Tarmac, which has 6,600 staff, to the Irish materials giant CRH, would also fall apart

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Plans to create the world’s biggest cement firm were under threat yesterday as Switzerland’s Holcim tore up plans for a merger of equals with France’s Lafarge.

The two companies have been negotiating for almost a year over the creation of a giant with some $44bn (£30bn) in annual sales, one of the biggest mergers to be unveiled in 2014.

If the deal collapses, plans to sell the UK business Tarmac, which has 6,600 staff, to the Irish materials giant CRH, would also fall apart. CRH agreed to pay €6.5bn (£4.6bn) for a slew of operations being offloaded by the pair at the behest of competition authorities, including the UK business, Tarmac. CRH “noted” the latest discussions yesterday and is due to hold a meeting to approve its own acquisition on Thursday.

Lafarge Tarmac sale set to pave way for $40bn cement merger

The scale of the Holcim-Lafarge, as well as billions in sell-offs to satisfy competition concerns, was also due to create $150m in fees for investment bankers on both sides.

Under the original terms, first announced last April, Lafarge and Holcim shareholders were set to receive one share in the other company for each one of their own. The combined business would have had more than 130,000 staff, producing more than 400 million tonnes of cement every year, and would have combined Holcim’s strength in Latin America and Asia with Lafarge’s much stronger presence in Africa and the Middle East.

But Holcim has outperformed Lafarge in the past year, while a soaring Swiss franc has also boosted the value of the company. The Swiss company’s directors now say “The combination agreement can no longer be pursued in its present form.”

Holcim now wants to give away just 0.875 of its shares for every Lafarge share, although Lafarge is said to be pushing for a weighting of 0.93.

Lafarge’s boss Bruno Lafont was due to become chief executive of the merged company, but Holcim is now opposed to the appointment while original plans to give both firms seven seats on a combined board are now in doubt. 

Shares in Lafarge – which said it was only willing to revise the share exchange ratio – fell more than 4 per cent in Paris, making it the biggest faller on the CAC 40.

The two companies are negotiating “in good faith” but if the deal collapses it could jeopardise a fees bonanza for Goldman Sachs, which advised Holcim, as well as Lafarge’s advisers Rothschild and Zaoui & Co.

Lafarge – which means “the forge” – traces its history back 182 years, to when Joseph-Auguste Lafarge began extracting limestone in southern France; the firm later won the contract to supply materials for the construction of the Suez Canal. Holcim dates back to 1912 and until 2001 was known as Holderbank, after the Swiss village where its first plant was based.

Robert Gardiner, an analyst at Davy, said: “We still place a higher probability on the deal going ahead than not. The downside risks of not doing a deal are greater, especially for Lafarge.”