Switzerland’s Holcim and France’s Lafarge, the world’s biggest cement producers, are to merge and create a group with combined annual sales of €39bn.
Under the agreed deal, Holcim will take over Lafarge and offer one Holcim share for one Lafarge share. Major asset disposals will take place in an effort to placate competition authorities around the world.
Bruno Lafont, Lafarge’s chief executive (CEO) will retain the same position in the combined group, while Holcim’s chairman designate Wolfgang Reitzle becomes group chairman.
“I can see the logic in this merger, but there are big question marks as to whether a merger on this scale will work,” commented Christian Stadler, associate professor of strategic management at the UK’s Warwick Business School, who researched Lafarge as part of a 10-year study into long-living companies.
“There are lots of examples of mega-mergers destroying value rather than enhancing it,” added Dr Stadler. “A prime example comes from the car industry when Daimler and Chrysler merged, both companies lost billions of pounds before they agreed to part again. When BP merged with Amoco in 1998 they had many problems in terms of increased complexity and duplications, it certainly affected BP’s performance for a long time.
“Lafarge merging with Holcim makes a lot of sense in terms of increasing scale, because cost is a big problem in that industry, it will also increase global reach, but neither have done a mega merger before and the challenges can be tremendous when it comes to implementation. It is the processes, the small details that you can’t put on paper, and the clash of cultures.
“Lafarge has a strong French culture, while Holcim is rooted on the Germanic side of Switzerland. Both companies have experience in acquisitions, Holcim acquired Aggregate Industries in 2005, while Lafarge bought Orascom in 2007, but a merger on this scale is a different proposition altogether and will create many new challenges
“I think it has a good chance of being passed by competition commissions in the various regions. There are overlaps in North America and in Europe which will mean they will have to do divestments to overcome concerns about cartel building and price fixing, but I think they will able to respond to get this sorted.”
All four of the world’s top cement groups have been the subject of an investigation since 2008 by the European Commission (EC) for alleged cartel building and price fixing.
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