Lafarge-Holcim Success Hinges on Bridging Culture Gap

Merging cement makers Holcim and Lafarge will create an industry giant with $44 billion in annual sales. Just as important to the venture’s future, it will also bring two of Europe’s most ambitious executives under one roof.

The relationship between Holcim Ltd.’s Wolfgang Reitzle and Lafarge SA chief Bruno Lafont will be crucial as the companies attempt to sell assets to gain regulatory approval, satisfy a roster of billionaire shareholders and cut costs by combining operations sprawled across five continents.

German-born Reitzle brings strategic merger experience following a successful $14 billion takeover as CEO of Linde AG. Lafont, who speaks fluent German and English in addition to his native French, has a reputation as an exacting boss who visits plants regularly and maintains close contact with managers.

“Putting teams together will be difficult and complicated,” said Total SA CEO Christophe de Margerie, a friend of Lafont, whom he describes as dynamic and occasionally bossy. The combined experience of the two executives, though, will be an asset for the new company, de Margerie said by phone on April 18.

Reitzle will serve as chairman of the merged LafargeHolcim, as it will be called, while Lafont will be its chief executive officer. Holcim CEO Bernard Fontana will remain in his post until the merger is completed -- targeted for the first half of next year -- then will leave the company. The companies declined to make executives available for this story.

Different Cultures

Holcim, headquartered near Zurich, and Paris-based Lafarge have substantially different corporate cultures, said Sanford C. Bernstein analyst Phil Roseberg. Lafont keeps his executive team on a much tighter rein than Holcim managers are, and bringing the two management philosophies together will be key to success.

“Lafarge is all about command and control,” Roseberg said. “Holcim is about delegating to the regions.”

The companies say the merger will lead to cost savings of 1.4 billion euros ($1.9 billion) annually. They expect that will give them an advantage over rivals as the global recession has eroded demand for building materials and forced some kilns to run at a loss.

Deliver Benefits

“Big mergers do work out for a lot of people,” Nuno Fernandes, a finance professor at the Lausanne-based IMD business school, said by phone. “They only don’t work out on average for the buyers because they overpaid.” Managers need to execute on promised savings and communicate quickly with the market and clients about the benefits of the merger, he said.

The companies say they will sell cement plants and other businesses with 5 billion euros in revenue to win regulatory approval. About two-thirds of the divestments will come from Europe, Lafont told reporters when the proposed deal was announced. The new entity may also sell assets in Canada, the U.S., Brazil, India and China. Lafont said he expects the company will need to negotiate with about 15 competition authorities worldwide.

Holcim shares rose 2.7 percent in Zurich as of 14:01 p.m. while Lafarge’s stock was up 2 percent in Paris.

Reitzle and Lafont also have to please demanding billionaire owners. Switzerland’s Thomas Schmidheiny is Holcim’s largest shareholder, with 20.1 percent, while Georgia-born Filaret Galchev is No. 2 with 10.8 percent. Belgium’s Albert Frere owns the biggest piece of Lafarge, 21 percent, while Egypt’s Nassef Sawiris controls 13.9 percent.

BMW Boss

Though Reitzle is a relative newcomer to the world of cement, running LafargeHolcim will mark the latest in a string of high-profile posts. He spent 22 years at luxury carmaker Bayerische Motoren Werke AG, rising to become product development chief. And he has spent more than a decade leading Linde AG, which he transformed into the world’s No. 1 industrial gas supplier partly thanks to the $14 billion acquisition of larger U.K. rival BOC in 2006.

He also knows how to juggle multiple roles. While he still runs Linde, Reitzle has been chairman of the supervisory board at German tire maker Continental AG since 2009 and a board member at Holcim for the past year. He’s scheduled to take over as Holcim’s supervisory board chairman today, and on May 1 he will leave Linde.

Playing Peacemaker

At Continental, Reitzle helped calm tempers and smooth the relationship with competitor Schaeffler AG when that company attempted a hostile takeover in 2008, according to a person familiar with him who asked not to be named.

Reitzle is “very impressive,” said John Wolkonowicz, an auto analyst who worked as a product planner at Ford while Reitzle headed that carmaker’s European luxury brands. BMW is “arguably the most revered brand in the automotive world, and I think he had a lot to do with that.”

Outside the office, business and planning is a big part of Reitzle’s life. He owns a vineyard in Tuscany that produces a cabernet sauvignon, merlot and Montepulciano mix that he sells for 35 euros a bottle. The Bavarian native raised his public profile in Germany with his marriage to TV talk show host Nina Ruge.

For Lafont, the merger means relinquishing the combined titles of chairman and CEO, which he’s held for seven years, to become just the chief executive of the new company. Starting out in auditing, the cigar-smoking, gum-chewing classical music buff rose to become finance chief and then group leader in a cement career that began more than three decades ago.

Orascom Deal

Lafont’s deal-making record is less illustrious than Reitzle’s. In 2007, he oversaw the purchase of cement operations from Egypt’s Orascom Construction Industries for $15 billion, saddling the company with debt just as construction slowed.

“He can be sometimes very secretive,” said Michel Rose, Lafarge’s chief operating officer from 2004 to 2008, who still sits on the boards of the company’s units in Malaysia and Morocco. “In the Orascom deal, maybe three or four people were in the loop.”

Rose, though, maintains that the Orascom purchase has paid off, despite its “unlucky” timing.

“That remains a superb deal from a strategic point of view,” Rose said. “It gave Lafarge access to high-growth countries that aren’t easy to penetrate.”

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