Shares of Holcim Ltd. and Lafarge SA surged as the cement makers reported rising earnings and a key shareholder agreed to back their planned merger, bringing them to the brink of securing investor approval for the deal.
Holcim’s second-biggest Eurocement Holding AG, which previously opposed the planned merger, said yesterday it now supports the deal as it regards the development of the combined company as “very positive.” Holcim today reported an almost fourfold increase in first-quarter net income while Lafarge’s operating profit in that period beat analyst estimates.
Two-thirds of Holcim’s stakeholders need to approve a capital increase on May 8 for the merger to go through and create the world’s biggest cement maker with a market value of more than $46 billion. Thomas Schmidheiny, Holcim’s largest shareholder and the billionaire co-architect of the merger, supported the tie-up from the beginning. Corporate governance adviser International Shareholder Services recommended last week that investors back the deal.
“With Eurocement now having given its support to the merger, the vote should be carried comfortably,” said Barry Dixon, an analyst at Davy. “Eurocement’s support is extremely valuable to the completion of the merger,” Lafarge CEO Bruno Lafont said in an interview with Bloomberg Television.
Holcim shares gained as much as 2.6 percent in Zurich trading today while Lafarge gained as much as 6.3 percent in Paris.
The companies tweaked the original merger agreement in recent weeks to win over Holcim investors who were unhappy about the performance of Lafarge since the deal was agreed last year. The Swiss company will now have a bigger stake in the new entity, and the cement makers also appointed Eric Olsen to lead their combined operation after Holcim shareholders opposed Lafont as head of the new group.
Lafarge’s earnings before interest, taxes, depreciation and amortization climbed 17 percent to 403 million euros ($451 million) in the first quarter, exceeding an average of analysts’ estimates of 368 million euros. While Holcim’s operating profit missed the estimates of some analysts, its net income rose to 310 million francs ($330 million) from 80 million francs, as the proceeds from divestments and cost cuts helped to make up for sluggish demand in Europe and Canada.
“Overall, slightly disappointing result for Holcim,” said Sanford C. Bernstein analyst Phil Roseberg. “But this slight reversal of fortunes compared to Lafarge in the first quarter, we believe, should be good for the balance of the shareholder vote.”
Holcim and Lafarge have predicted the merger will lead to cost savings of 1.4 billion euros annually, giving them an advantage over rivals after a global recession eroded demand for building materials and forced some kilns to run at a loss.