Holcim and Lafarge merger – good deal but bad timing
IMD Professor Reacts: Finance expert Nuno Fernandes on the Holcim and Lafarge Merger
March 25, 2015
We caught up with IMD Professor, and merger and acquisitions specialist, Nuno Fernandes to discuss the Holcim and Lafarge merger.
IMD: Did the Holcim and Lafarge merger make financial sense?
Nuno Fernandes: These companies didn't merge just to increase their CEOs' egos and salaries. The proposed merger between Holcim and Lafarge, the world's two largest cement producers, can be classified as a "good" merger/acquisition (M&A) deal. That makes it different to the average M&A, the majority of which actually destroy shareholder value.
In this particular case, the synergies are enough to justify the combination of the two companies, and to create value. The synergies lie in the two firms' complementary geographies, innovation and product portfolios. There will also be capital expenditure savings due to their combined investments in growth regions.
IMD: What have been the mistakes along the way?
NF: The deal was good but the timing was bad. It has taken a significant amount of time for the deal to finally close. This exposes the deal to risks, which actually materialized, like the end of the Swiss franc cap in January this year. And personality clashes almost made the deal crash.
IMD: What can be learned about M&As from this?
NF: It is a deal with a good economic logic, but with significant unnecessary risks introduced due to clashes in personalities and top management's individual interests.
Overall, Holcim and Lafarge are on a good path now. But execution is key, and vital implementation decisions must be made rapidly.
Managers must ensure the execution of the synergies goes according to plan, and that the merger ultimately drives improved return on capital employed, and cash flows.
Post-merger integration should focus on the items that most justify the agreed transaction price and potential value creation for Holcim and Lafarge shareholders in the long run.
This continuity is important. One of the most common mistakes in M&As is to dissociate the deal phase from the post-merger period, which explains why most similar deals fail to create value. For instance, business units or divisions should not be allowed to define the integration approach in isolation after the deal is concluded. The post-merger process has to begin with rigorous pre-merger planning.
Nuno Fernandes is Professor of Finance at IMD, where he directs the Strategic Finance program and also Finance Fundamentals for Executives, a new IMD "Global Leadership in the Cloud" program. He is the author of Finance for Executives: A Practical Guide for Managers.
Read Nuno's Five Golden Rules for Mergers and Acquisitions