Ethos recommends rejecting the merger of Holcim and Lafarge at the general meeting on 8 May 2015. Ethos is of the opinion that Holcim on a stand-alone basis is better placed to create long term value than the new entity. Also, the merger will have a negative effect on corporate governance as the new group will have two co-chairmen and a board with less than half independent members. The integration of the decentralised functioning of Holcim and the centralised organisation that is Lafarge entails a major risk of dysfunction.
After having analysed the relevant documents and after several contacts with the representatives of the board and the executive management of the future company, Ethos has come to the conclusion that the proposed merger between Holcim and Lafarge is not in the interest of the shareholders and a majority of the other stakeholders of Holcim. Ethos therefore opposes the share capital increase necessary for the completion of the merger requested at the general meeting on 8 May 2015.
Major financial risks
Ethos is not convinced by the strategic rationale of the merger and is of the opinion that certain assets of Lafarge might have a negative impact on the profitability of the new group. Holcim would be better off delivering value to its shareholders on a stand-alone basis. Lafarge’s goodwill of EUR 11 billion as well as limited investments to improve and renew its infrastructure in the past five years could have a negative impact on the financial results of the new group.
The risk appears even greater when considering that the board of Holcim clearly states not having carried out a detailed due diligence on the quality of the assets of Lafarge. Also, Holcim refuses to publish the two fairness opinions on which the board based its decision to support the operation.
Negative impact on corporate governance
Upon completion of the merger, the new board will have 7 representatives of each company. While five of the 7 representatives of Holcim are independent, this is the case for only one on Lafarge’s side. The new board will thus be far less independent than Holcim’s current one. The chosen solution to appoint two co-chairmen (Messrs. Reitzle and Lafont) constitutes a major risk of confusion and conflict. For example, in case of absence of Mr. Reitzle, it is the vice-president (Mr. Hess) who will replace him and not the co-chairman.
In terms of the integration of the two structures, there exists a legitimate concern regarding the two very different corporate cultures. The decentralised functioning of Holcim stands in contrast to the centralised organisation that is Lafarge. Ethos is of the opinion that there is a major risk of demotivation and departure amongst key employees of Holcim, such as heads of certain markets that will be limited in their autonomy. Finally, no information was given on the impact of the merger on jobs. As synergies are estimated at 250 million Swiss francs by elimination of duplicative functions, it is to be feared that this will lead to several thousand job cuts.
