Silence Is Golden in French Mergers
The birth pangs accompanying the year-long effort to merge France's Lafarge with Switzerland's Holcim have been convulsive, to say the least.
Trying to create the world's biggest cement company -- one likely to have a market value of $48 billion -- has cost Bruno Lafont, the chief executive officer of the French company, his job. The Swiss company not only questioned Lafont's leadership style and cost-cutting bona fides, it also negotiated a bigger stake in the combined entity than originally planned.
And yet the French government has so far resisted its usual impulse to interfere in mergers or acquisitions of its national champions.
The French company has given ground to keep the deal on track; it also has implicitly accepted that the new management will aggressively cut costs. And yet the noisiest comment from Paris, which came on Friday, was remarkably subdued: A spokeswoman for the economy minister said officials are observing the deal's progress, keen that Holcim doesn't just absorb Lafarge and transfer all decision-making to Switzerland.
So no nationalism, no drama and, most important, no politicians butting in with demands to keep unprofitable kilns running or to keep headcounts at unsustainable levels.
It's a welcome contrast to last year's meddling, when France made General Electric's $17 billion bid for the energy assets of Alstom conditional on the government getting a 20 percent stake in the venture -- "keeping Alstom French," as Arnaud Montebourg, the economy minister at the time, described it.
Maybe French politicians have been distracted by their local elections, with President Francois Hollande's Socialist Party lagging rivals with 21.4 percent of the Sunday vote, outpaced by former President Nicolas Sarkozy's UMP winning 27.9 percent in the first round and Marine Le Pen's National Front taking a 25.1 percent share.
Maybe cement is just too boring for French politicians, even though Lafarge has about 64,000 workers, not far short of the 68,000 its Swiss peer employs. Moreover, the combination predicts it can trim 1.4 billion euros ($1.5 billion) from annual costs to weather a global contraction in demand for building materials, which you have to assume means job cuts in both France and Switzerland.
The need to get leaner is illustrated by this chart, courtesy of Bloomberg Intelligence analyst Sonia Baldeira, showing how a lackluster rise in U.S. cement production (the white line) has outpaced an even weaker rally in demand (the orange line) since 2009:
Maybe the French government's silence is evidence of a new-found maturity, or that its national pride is less threatened when the buyer sits just across the border. If either is the case, it'll be interesting to see how another takeover battle unfolding to the south-east of France and Switzerland pans out.
There, ChemChina, a state-owned Chinese chemicals company, is pursuing Italian tiremaker Pirelli, and wants to take the Milan company private. Given the Italians' love affair with their automotive history, Pirelli is likely to arouse more nationalist fervor than any cement company could. And given that the suitor is effectively an arm of the Chinese government, Italian politicians may be stirred to action.
That would be the wrong reaction. Unless national security is involved -- a category for which neither tires nor cement qualifies -- governments should forego the temptation to gate-crash corporate takeovers, no matter what the nationality of the bidder is. France should be congratulated for its forbearance; Italy should follow suit.
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