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 The deal announced in April 2014 was supposed to combine the firms
on an equal basis. But since then, diverging results, share prices
and a surge in the Swiss franc against the euro have strengthened
Holcim's position and led its largest shareholder to press publicly
for a revision of the agreement.
"The Holcim board of directors has concluded that the combination
agreement can no longer be pursued in its present form," Holcim said
in a statement, saying it was ready to talk about both the share
exchange ratio and "governance issues".
Lafarge said in a separate statement it was willing to consider
revising the share exchange ratio but not other aspects of the deal,
which was unveiled as "a merger of equals".
Lafarge boss Bruno Lafont was due to become chief executive of the
merged company but Holcim wants to change the earlier plan, a person
familiar with the situation said.
A top 10 shareholder told Reuters that the board composition was
also an issue, since the original plan to divide the seats equally
with seven for each side was no longer fair.
Lafarge shares fell 4.5 percent, making them the biggest loser on
the French blue-chip index, while Holcim fell 1 percent as the two
firms' positions cast doubt over the deal.
"For us, this leaves the issue of an adjustment or break-up wide
open," wrote Bernstein Research.
"The boards were not nearly as united as we expected ... both sides
have taken tough negotiating positions, with some willingness to
find common ground on the financial terms but little flexibility on
changes to governance," Bernstein said.
SHARE RATIOS
Shareholders of both groups still had to ratify the deal and some on
the Holcim side have been agitating for change, including investor
Thomas Schmidheiny who owns a 20 percent stake.
The differences between the two companies came to a head during the
transition period in which they were seeking antitrust approvals
globally and selling off assets to comply with various regulators'
requests.
On Feb. 2, Holcim and Lafarge agreed to sell a chunk of their
European businesses to Irish group CRH to secure approval for the
merger from European Union competition authorities.
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CRH shares fell 3 percent on Monday on news Holcim wanted to
renegotiate the Lafarge merger terms.
Approvals for the deal are still needed in India, the United States
and Canada.
According to the person familiar with the situation, Holcim has
proposed changing the previously agreed 1-1 share exchange ratio to
0.875 Holcim shares for each Lafarge share, confirming a Sunday
report from Bloomberg.
Lafarge is said to be planning a counter proposal that would trim
its weighting to 0.93 to get the deal done, the person said.
"Lafarge's board of directors remains committed to the project that
it intends to see implemented," the French group said on Monday.
Holcim said further details would be communicated later.
Shares in Lafarge and Holcim moved broadly in tandem after the deal
was announced, but the positive correlation broke down in late
February after Holcim reported stronger growth.
Shares in Lafarge are down nearly 8 percent since then, while Holcim
shares are up 0.2 percent over the same period.
(Additional reporting by Blaise Robinson in Paris; editing by David
Clarke)
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