Read the case "A Merger of Equals" (attached) and answer the following questions:
- What was the rationale for the merger?
- What are the necessary conditions for this rationale to be realized?
?
Strategic Focus A Merger of Equals: Making It Happen Isn't Easy! Founded in France in 1833, Lafarge became a successful global board members that the financial terms should be more attrac industrial company specializing in three product areas-cement, tive for their shareholders and that Lafarge's CEO should not construction aggregates, and concrete. The other party in a be appointed as CEO of the newly-created firm. One reason for "merger of equals," that required well over a year to design and these convictions was that in the nearly one year since terms of bring to the conclusion the firms intended, is Holcim, a materials the initial merger were agreed upon, Holcim's "operating perfor- and aggregates company that was founded in Switzerland in mance and share price had outperformed those of Lafarge." After 1912. Holcim's global ambitions were obvious early when the restructuring the financing of the transaction and agreeing that firm expanded into France and throughout Europe and the a different CEO would be appointed for the new firm, 94 percent Middle East during the 1920s. This expansion resulted in long- of Holcim's shareholders approved the transaction's terms. term and active competitions between Lafarge and Holcim. After dealing with challenges, LafargeHolcim became a firm In April of 2014, Lafarge and Holcim announced that they had that was a merger of equals in July 2015. Speaking to the future, settled on terms that would result in a merger of equals and that, one board member said that "this isn't just another merger. It is accordingly, they were prepared to seek regulatory approval of the an opportunity to create a new Number One in our industry." proposed transaction. Obtaining such approvals was anticipated Assuming that this merger of equals achieves the potential some to be challenging given that the diversity of the independent anticipate, all of the work required to bring it about will be vali- firms' global operations meant that 15 or so different jurisdictions dated. Going forward though, implementation challenges may could potentially object to a merger between the firms. come into play, at least in the short term, given the potential What influenced Lafarge and Holcim to want to merge as coequals given the difficulties of doing so? The prevailing thought is that mergers of equals are always more fragile to bring about in light of the need to effectively meld what are commonly LAFARGE Holcim two different cultures and specify the leadership structure that will be used to operate the newly-created firm. These issues are in addition to a core one of identifying the financial aspects of the transactions that will appeal to each firm's shareholders. etty ImagesIn spite of challenges such as these, Lafarge and Holcim thought that merging as equals would create a firm with enhanced and significant competitive abilities. Leaders of the two firms con- cluded that together LafargeHolcim, the agreed upon name for the combined firm, would have the most balanced and diversified FRANCK FIFE/AFP/ portfolio in the building materials industry. The firms anticipated Shown here left to right shaking hands during an announce- that integrating their operations would generate approximately ment of their firms' intention to merge are Rolf Soiron, $1.5 billion in annual cost savings. In an overall sense, company the chair of Holcim's board of directors and Bruno Lafont, leaders thought that the anticipated positive benefits of merging CEO of Lafarge SA. Later, Eric Olsen was selected as the would come about primarily as a result of being able to meld CEO of the newly formed firm, called LafargeHolcim. Holcim's marketing strengths with Lafarge's innovation capabilities. incompatibility of Holcim's decentralized management approach Perhaps not unexpectedly, the transaction proposed with the more centralized approach that characterized Lafarge between Lafarge and Holcim almost fell apart. This happened when it competed as an independent firm. Those leading the in March of 2015 when Holcim's board, "after first agreeing to integration processes associated with the details of combining a $44 billion merger with Lafarge, rejected the deal's terms as the two firms will need to pay close attention to this issue. undervaluing Holcim. Corporate leadership also was a concern." Sources: 2015, Holcim and Lafarge obtain merger clearances in the United States This objection surfaced after the firms had received regulatory and Canada paving the way to closing their merger, Holcim Home Page, www.holcim. approvals from key jurisdictions, including the European Union, com, May 4; 2015, Lafarge to cut 380 jobs ahead of merger with Holcim, Global India, and the United States, regarding the number of divesti- Cement, www.globalcement.com, May 19; M. Curtin, 2015, Holcim-Lafarge shows 'merger of equals' doesn't equal smooth sailing, Wall Street Journal Online, www.wsj. tures of units they would make to prevent them from having com, March 16; M. Curtin, 2015, A 'merger of equals' is more fragile, Wall Street Journal highly concentrated positions in different global markets. Online, www.wsj.com, March 16; J. Franklin, 2015, Holcim and Lafarge name post- At the core of the dispute was the conviction among Holcim's merger board candidates, Reuters, www.reuters.com, April 14; J. Revill, 2015, Holcim moves step closer to Lafarge merger, Wall Street Journal Online, www.wsj.com, May 8
