M&A

The Schmidheiny paradox

A Holcim facility in New Zealand. Image: Holcim.

A Holcim facility in New Zealand. Image: Holcim.

A Swiss dynasty worked hard to stop a Russian upstart taking too much control in their business. But should they have bothered? 

Was it all worth it? That is the question the Schmidheiny family might be asking themselves this week.

The family is one of the biggest shareholders in LafargeHolcim, a vast cement business that was created last year with the merger of Holcim and Lafarge.

The $40bn deal was hugely controversial, and took over 18 months to overcome objections that it was anti-competitive. Ramming the two businesses together was, to say the least, a headache.

Control

But it happened because - although the commercial logic was always iffy - the deal was about control. Holcim was founded in 1912 by Ernst Schmidheiny, grandfather of the current patriarch Thomas.

The family owned 20% of the business but were reportedly worried that a Russian named Filaret Galchev had built a huge stake.

Through his Eurocement business Galchev had taken 11% of Holcim, and the suspicion was that he would increase it to rival the founding family’s own share. Something had to be done to stop the upstart.

And so the merger was dreamed-up, driven hard by Holcim. Galchev only read about the proposal when a press release was issued and was not happy. But the tie-up went through in June 2015. Galchev’s stake in the combined company was a more acceptable 6%.

LafargeHolcim's share-price has fallen since the merger in June 2015. Google Finance.

LafargeHolcim's share-price has fallen since the merger in June 2015. Google Finance.

Along with their allies - notably Belgian billionaire Albert Frere - the Schimdheinys now had more control.

Break out the champagne? Not really. Since then commodity prices, and LafargeHolcim’s share-price, have fallen.

Collateral

And now it has emerged that Galchev has sold his stake, said to have a value of $1.5bn, after his lender, Bank of America Merrill Lynch, became worried about falling cement prices and asked for more collateral.

Although the original agreement was that Galchev would buy the shares back, they have now been sold.

The upshot? The family paid a heavy price to neutralise a threat, ending up with a smaller stake in a bigger business. But if they had done nothing, the problem would have just gone away when the markets dipped.

In their urgent desire to keep control, the family appear to have ended up with less. 

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