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Ch apte r 7. Mini -Case

Cementing a Merger of Equals between Lafarge and Holcim Has Been Difficult

Founde d in Franc e in 1833 , La farge beca me a success ful globa l indus trial co mpan y spec ializing

in three produc t areas — ce men t, cons truc tion agg rega tes , an d conc rete. Th e othe r pa rty in a

“merge r of equa ls,” which requ ired well ove r a yea r to des ign an d bring to the conc lus ion the

firms intended , is Holcim, a materials an d agg rega tes co mpan y tha t was founde d in Switze rlan d

in 1912 . Holcim’s globa l ambition s were obv iou s ea rly whe n the firm expande d into Franc e an d

throughou t Eu rop e an d the Midd le Eas t du ring the 1920s . Th is expans ion resu lted in long -term

an d ac tive co mpe titi on s be twee n La farge an d Holcim.

In Ap ril of 2014 , La farge an d Holcim announce d tha t the y ha d se ttled on terms tha t wou ld resu lt

in a merge r of equa ls an d tha t, acco rding ly, the y were prepa red to see k regu latory app rova l of

the propose d transac tion . Obtaining suc h app rova ls was an ticipa ted to be cha lleng ing give n tha t

the dive rsity of the independen t firms’ globa l ope ration s mean t tha t 15 or so differen t jurisd iction s

cou ld po ten tially ob jec t to a merge r be twee n the firms.

W ha t influence d La farge an d Holcim to wan t to merge as coequa ls give n the difficu lties of do ing

so ? Th e preva iling though t is tha t merge rs of equa ls are alway s more frag ile to bring abou t in

ligh t of the nee d to effec tive ly meld wha t are co mm on ly two differen t cu ltures an d spec ify the

leade rsh ip struc ture tha t will be use d to ope rate the ne wly crea ted firm. Thes e issue s are in

add ition to a co re on e of iden tifying the financ ial aspec ts of the transac tion s tha t will appea l to

eac h firm’s sha reho lde rs.

In sp ite of cha llenge s suc h as these , La farge an d Holcim though t tha t merging as equa ls wou ld

crea te a firm with enhance d an d sign ifican t co mpe titi ve ab iliti es . Leade rs of the two firms

conc lude d tha t toge the r La farge Holcim, the ag reed -upo n na me for the co mbine d firm, wou ld

hav e the mos t ba lance d an d dive rsified po rtfolio in the bu ilding materials indus try. Th e firms

an ticipa ted tha t integ rating the ir ope ration s wou ld gene rate app rox imately $1 .5 billi on in annua l

cos t sav ings . In an ove rall sense , co mpan y leade rs though t tha t the an ticipa ted pos itive bene fits

of merging wou ld co me abou t primarily as a resu lt of be ing ab le to meld Holcim’s marke ting

streng ths with La farge ’s innova tion capab iliti es .

Pe rhap s no t unexpec ted ly, the transac tion propose d be twee n La farge an d Holcim almos t fell

apa rt. Th is happene d in March of 201 5 whe n Holcim’s boa rd, “after first ag ree ing to a $4 4 billi on

merge r with La farge , rejec ted the dea l’s terms as unde rva luing Holcim. Corpo rate leade rsh ip also was a conce rn.” Th is ob jec tion su rface d after the firms ha d rece ive d regu latory app rova ls

from ke y jurisd ictions , inc lud ing the Eu ropea n Union , Ind ia, an d the United States , rega rding the

nu mbe r of dives titures of un its the y wou ld mak e to preven t the m from hav ing high ly concen trated

pos ition s in differen t globa l marke ts. At the co re of the dispu te was the conv iction amon g

Holcim’s boa rd membe rs tha t the financ ial terms shou ld be more attrac tive for the ir sha reho lde rs

and tha t La farge ’s CEO shou ld no t be appo inted as CEO of the ne wly crea ted firm. One reaso n

for thes e conv iction s was tha t in the nea rly on e yea r sinc e terms of the initial merge r were ag ree d

upon , Holcim’s “ope rating pe rformanc e an d sha re price ha d ou tpe rformed thos e of La farge .”

After res truc turing the financ ing of the transac tion an d ag ree ing tha t a differen t CEO wou ld be

appo inted for the ne w firm, 94 pe rcen t of Holcim’s sha reho lde rs app rove d the transac tion ’s

terms.

After dea ling with cha llenges , La farge Holcim beca me a firm tha t was a merge r of equa ls in Ju ly

2015 . Speak ing to the future, on e boa rd membe r sa id tha t “this isn ’t jus t ano the r merge r. It is an

oppo rtun ity to crea te a ne w Numbe r One in ou r indus try.” Assu ming tha t this merge r of equa ls

ach ieve s the po ten tial so me an ticipa te, all of the work requ ired to bring it abou t will be va lida ted .

Going forward though , implemen tation cha llenge s may co me into play, at leas t in the sho rt term,

give n the po ten tial inco mpa tibilit y of Holcim’s decen tralize d manage men t app roac h with the

more cen tralize d app roac h tha t cha rac terize d La farge whe n it co mpe ted as an independen t firm.

In fac t, in 201 6 on e yea r after the merge r, the merge d firm was no t pe rforming well relative to

smaller co mpe titors. At its on e yea r ann ive rsa ry, “La farge Holcim ha s fallen 39 pe rcen t sinc e its

forerunne r, Switze rland ’s Holcim, revea led plan s to co mbine with France ’s La farge in Ap ril 2014 .

Irish bu ilding materials grou p CR H is up 29 pe rcen t in the pe riod ; Heide lbe rgCemen t is up by 13

pe rcen t. Th e Bloo mbe rg Eu ropea n 50 0 inde x ha s she d jus t 1.5 pe rcen t.” Give n the prog res s tha t

the firm sa id tha t the y were mak ing in rega rd to the integ ration , the ir marke t va lua tion shou ld

hav e bee n highe r. The re are ques tion s abou t the ab ilit y of La farge Holcim to crea te econo mies of

sca le from its large size . One obse rve r no ted tha t “ce men t is inhe ren tly a loca l bus ines s an d so

sca le econo mies aren ’t so eas y,” give n tha t transpo rting it lon g distance s is expens ive .

In Sep tembe r 2017 , a ne w CEO, Ja n Jen isch , was hired . W he n he launche d the strateg y to

rev ive the co mpany ’s fortunes , he announce d tha t La farge Holcim wou ld be “cu tting cos ts, se lling

asse ts an d focus ing on fewer marke ts as the world’s bigges t ce men t make r.” Th e firm also

announce d tha t it wou ld write off $4 billi on in asse ts an d the “stoc k fell more tha n 7 pe rcen t after

the strateg y was revea led .”

Sou rces : J. Rev ill, 2018 , La farge Holcim’s ne w CEO writes off ove r $4 billi on an d se ts ou t

strateg y, Reu ters, ww w.reu ters.co m; C. Hughes , 2016 , Man y unhapp y returns for a $5 0 billi on

merge r, Bloo mbe rg, ww w.bloo mbe rg.co m, Ju ly 13 ; 2015 , Holcim an d La farge ob tain merge r clea rance s in the United States an d Canad a pav ing the way to clos ing the ir merge r, Holcim

Home Page , ww w.ho lcim.co m, May 4; 2015 , La farge to cu t 38 0 job s ahea d of merge r with

Holcim, Globa l Cemen t, ww w.globa lce men t.co m, May 19 ; M. Curtin, 2015 , Holcim-La farge

sho ws ‘merge r of equa ls’ doesn ’t equa l smoo th sa iling , W all Stree t Jou rna l, ww w.wsj.co m,

March 16 ; M. Curtin, 2015 , A ‘merge r of equa ls’ is more frag ile, W all Stree t Jou rna l,

ww w.wsj.co m, March 16 ; J. Frank lin, 2015 , Holcim an d La farge na me pos t-merge r boa rd

cand ida tes , Reu ters, ww w.reu ters.co m, Ap ril 14 ; J. Rev ill, 2015 , Holcim move s step close r to

La farge merge r, W all Stree t Jou rna l, ww w.wsj.co m, May 8.

Cas e Discuss ion Ques tion s

1. Of the “Reason s for Acqu isitions ” discusse d in the chap ter, which reason s are the primary

drive rs of La farge -Holcim merge r strategy ?

2. Give n tha t the re hav e bee n pe rformanc e difficu lties of this “merge r of equa ls,” which of the

“Prob lems in Ach iev ing Acqu isition Success ” do yo u be liev e hav e mos t like ly affec ted this

dea l?

3. Th e ne w CEO, Ja n Jen isch , ha s unde rtake n a res truc turing strateg y. W hy do yo u think the

marke t reac ted nega tive ly to this plan ?

4. W ha t wou ld yo u sugges t the firm do to improv e it res truc turing plan an d ultimately its poo r

pe rformance ?