Cement companies Holcim and Lafarge are renegotiating the details of their merger after Holcim demanded better terms to reflect its strong performance since the original agreement.
The deal is still likely to go ahead but competition counsel and regulators will monitor the discussions carefully in case further antitrust action is necessary.
The European Commission cleared the deal in Phase I subject to what competition commissioner Margrethe Vestager called "very substantial" commitments in December.
In total, parties notified the deal in more than 20 jurisdictions, most of which have now given their blessing. India, the US and Canada remain outstanding but GCR understands the merger review is generally progressing well.
Philipp Girardet, at King & Wood Mallesons in London, was competition counsel to Fyffes in its aborted merger with fellow banana company Chiquita last year. The parties received Phase I conditional clearance from the European Commission in October, only for Chiquita's shareholders to then reject the deal.
He says competition counsel must remain alert even after they have secured antitrust approval. Renegotiation post clearance can substantially alter the character of the deal, he says.
"A late change to the post-merger management arrangements and shareholdings may tip joint control into sole control or vice versa and may trigger the need to re-notify the deal based on the new governance arrangements and economics of the deal," Girardet says.
Furthermore, negotiations can upset deadlines for executions of divestments, he explains. If the deal is abandoned, the main job for competition counsel is to ensure that no sensitive information is exchanged or retained, Girardet adds.
Even if a cleared deal is abandoned, the merger decision lives on as a precedent for future deals, he says.
"It shows how the commission views the market and can lay the foundations for future reviews of other transactions," Girardet says. "For example, the commission accepted in Chiquita/Fyffes that the relevant markets have become much more competitive and dynamic over recent years. Parties in the affected market can now have regard to that decision to inform their assessment of what future transformational deals may be doable in this sector and at what possible cost in remedy terms."
Peter Stopfer, spokesman for Holcim, told GCR that Holcim is unhappy with the proposed "governance" of the merged company as set out in the original deal, agreed last April, but declined to say whether this related to the position of Lafarge’s Bruno Lafont as chief executive operator, as some newspapers have reported.
Holcim is also seeking a revision of the "exchange ratio" to reflect the changes in value of the two companies since the deal was first agreed in April last year, Stopfer said. Holcim has performed better than Lafarge recently, he pointed out.
The exchange ratio is the number of Holcim shares given to Lafarge shareholders in exchange for their Lafarge shares, currently one to one.
In a statement issued on Monday, Lafarge said it had received a letter from Holcim’s board stating Holcim’s intention not to go ahead with the deal under the existing terms.
Lafarge said it remain committed to the project. "The board said it is willing to explore the possibility of a revision of the parity, in line with recent market conditions, but it will not accept any other modification of the terms of the existing agreements," it said.
The cost of abandoning the deal like this would be enormous though advertising companies Omnicom and Publicis withdrew their €33 billion merger last year despite receiving antitrust clearance.
Counsel to Holcim
Europe
Freshfields Bruckhaus Deringer
Partners Frank Montag and Rafique Bachour in Brussels and Peter Niggemannin Düsseldorf, assisted by Karen Bonne Slaney, Foad Hoseinian, Babette Kacholdt, Thomas McGrath, Matthias Eisenbarth, Aaron Green, Katrin Gaßner, Maximilian Janssen and Enrique Carrera
China
Freshfields Bruckhaus Deringer
Counsel Ninette Dodoo in Beijing, assisted by Timothy Lamb and Donghao Cui
Russia
Freshfields Bruckhaus Deringer
Partner Alexander Viktorov in Moscow, assisted by Olga Kovtunova and Lali Charkviani
Canada
Blake Cassels & Graydon
Partner Brian Facey in Toronto
Brazil
TozziniFreire
Partner Marcelo Calliari in Sao Paulo
Counsel to Lafarge
Europe
Cleary Gottlieb Steen & Hamilton
Partners Antoine Winckler, Nicholas Levy and François-Charles Laprévote in Brussels assisted by Paul Gilbert, Niklas Maydell, Jacopo Figus Diaz, Charlotte Emin, Sven Frisch, Pierre Moullet and Anna Vallianatou, Henry Mostyn, Esther Bitton, Victor Levy and Philippe Prigent
US
Cleary Gottlieb Steen & Hamilton
Partner Mark Nelson in Washington DC, assisted by Zuzanna Knypinski and Daniel Culley
Russia
Cleary Gottlieb Steen & Hamilton
Partner Murat Akuyev in Moscow, assisted by Maxim Izvekov and Yury Babichev
Canada
McCarthy Tetrault
Partners Donald Houston and Oliver Borgers in Toronto
Brazil
Levy e Salomão Advogados
Partner Ana Paula Martinez in São Paulo
