FT : Lex in-depth: Universal banks

Lex in-depth: Universal banks

One-stop banks always have an excuse for lacklustre performance, but it is time for them to make bold changes

It was a cruel moment. A barb from a direct competitor at a sensitive time. As JPMorgan Chase was preparing its fourth quarter numbers in January, Goldman Sachs took aim. “Debate about a break-up growing louder,” its analysts wrote, they then proceeded to lay out the case for splitting JPMorgan in to two (or even four).
The Goldman analysts were right to raise the question. Although it dislikes the term, JPMorgan is a prime example of a universal bank. Others — Citigroup, Bank of America Merrill Lynch, Barclays, Deutsche Bank — also combine retail and investment banking but JPMorgan is the most prominent.

And universal banks have been, to put it politely, a disappointment. JPMorgan produced a return on equity of 9.4 per cent last year. That is barely adequate but it is the best of a bad bunch. None of the others made it past 5 per cent. And last year was not out of the ordinary. Those five universal banks together have managed an average return on equity of 5 per cent over the past five years. There is always an excuse — fines, new rules, restructuring charges, tough conditions in one market or another — but these are all part and parcel of universal banking.
Compare that with the specialists. Look at Wells Fargo, which is predominantly in the retail sector, with a 12 per cent five-year average ROE. Or even Goldman, a pure investment bank, with 11 per cent.
The universal banking model is broken, a fact some banks have realised. UBS and RBS have moved. Others — Deutsche and Barclays, for example — have been less radical so far and need to go further. The US universal banks are the most wedded to the model, promising better returns in the future. But shares in almost all of them trade at a discount to specialists. The message from investors is clear.
Not what we signed up for
There ought to be benefits to scale, especially when it comes to funding and to covering the growing costs of compliance and IT.
Marianne Lake, JPMorgan’s chief financial officer, was in fine form at the bank’s investor day in February as she laid out the case for its structure — $15bn in cross-selling benefits and $3bn in cost synergies adds up to $6bn-$7bn of net income, or 30 per cent of the group total. That is a big chunk of profit to put at risk in the vague hope that the resulting companies would merit a higher stock price.
Academics are less convinced. Berenberg points out that two years ago the Bank for International Settlements looked at whether size brought benefits in banking. Of 37 academic studies reviewed, only 15 said it did. Hardly a resounding show of support.
Most of the universal banks are failing to prove that economies of scale exist. Cost-to-income ratios — a measure of an institution’s efficiency— are high at the universal banks: JPMorgan’s is 63 per cent, Citi’s 72 per cent and Bank of America’s 88 per cent. Again, the specialists tend to do better. Wells Fargo and Santander manage 58 per cent and 47 per cent respectively. Goldman, manages 64 per cent.
Diverse companies ought to be safer. As one side of the business falters, the other thrives and the ship sails on. Some of the biggest failures of the crisis — Lehman Brothers, Bear Stearns, Washington Mutual, HBOS — were specialists, rather than universal banks.

So in theory, diversification should reduce funding costs. And that is before we even get into the debate about whether big banks benefit from an implicit government guarantee or whether cheap retail deposits can be used to finance (supposedly higher returning) investment banking activities — a practice that post-crisis regulators are stamping out.
But these benefits are also absent. Post-crisis rules force the biggest global banks to hold more shareholder capital, a relatively expensive form of funding. JPMorgan will eventually have to have a common equity tier one capital ratio of 11.5 per cent. Citi will probably need about 11 per cent (the rules are still being firmed up). Smaller, less systemic banks can get away with holding less.
On the debt side universal banks, with all their diversity, do not tend to enjoy lower credit ratings. JPMorgan, Deutsche, Citigroup, Goldman and Wells Fargo all have single A ratings from S&P. Prices of the credit default swaps — the cost of insuring against a default — are not much lower either. Insuring against a default from JPMorgan or BofA is cheaper than for the likes of Goldman and Santander, but more expensive than Lloyds and Wells Fargo, according to Markit.
That may be because of the added risks of complexity and opacity. As banks grow, it becomes more difficult for management to have full control. HSBC was taken by surprise by its Swiss private banking operation. The problems are a decade old but Stuart Gulliver, the chief executive, says he cannot know what all 257,000 of the bank’s staff are doing. In 2012 JPMorgan lost $6bn in the so-called London whale incident, when it lost control of risk-taking in its chief investment office. Such complexity was a big problem in the crisis, when banks struggled to understand what was on their own balance sheets let alone everybody else’s.
The universal banks have to change. They have three options.
The axe
The most obvious is to get out the axe and sever one of the limbs. The Royal Bank of Scotland is attempting something like this, dispensing with most of its investment banking activities. It plans to cut risk-weighted assets in the investment bank from £147bn in 2013 to as little as £35bn by 2019.
Investment banking is a popular target for cuts. Revenues in the industry have been falling 6 per cent a year since 2009, according to data from Morgan Stanley and Oliver Wyman. The fixed income, currencies and commodities sectors — the most capital intensive part of the business — have been falling 9 per cent a year.

But the axe does not have to fall on the investment bank. For Deutsche, its retail arm appears to be the bigger obstacle to profitability, employing €14.4bn of equity for a 6 per cent return in 2014. Germans tend to borrow little and there is a lot of competition for those who do. Deutsche should spin off its retail business and become a specialist investment bank, pushing companies to borrow in the capital markets rather than via bank balance sheets.
This would not be an easy process. In particular, the departure of the bank’s €210bn of retail deposits would pose a challenge for the liquidity coverage ratio (a new rule stipulating that all long-term assets have to be matched by long-term liabilities). So in response it would have to cut assets in the investment bank to balance things out — Jefferies thinks a cut of €100bn is necessary. But that would not be a disaster.
The scissors
For those who lack the stomach for such radical solutions, there are the scissors. Here the example is UBS, which in 2012 decided to scale back its investment bank to focus on wealth management. Equity employed in the investment bank has shrunk from SFr10.9bn in 2012 to SFr7.6bn at the end of last year. Its share price has felt the benefit. Before the 2012 changes, the shares traded at 0.8 times book value. They now trade at 1.4 times.

Two banks would benefit from this sort of approach. The first is Barclays. It has committed to cutting its investment bank but the unit, which uses £15bn of equity — almost as much as the better performing retail business — produced an ROE of 2.7 per cent last year. The cuts have not gone far enough. Incoming chairman John McFarlane may have an appetite for hefty reforms. An investment bank serving UK-based corporate clients and perhaps also working with Barclays’ African interests would make sense. If that means that the 2008 acquisition of Lehman’s US operations looks like a mistake in hindsight, then so be it.
The other is UBS’s local rival Credit Suisse. Incoming chief executive Tidjane Thiam is unlikely to have been brought in with a mandate to expand the investment bank. Like UBS, it should shape its investment operation to serve the wealth management business. Analysts at Deutsche estimate that an exit from most of the FICC businesses, for example, would release SFr10bn of capital and that the drop in earnings could be offset by the higher share price. (Credit Suisse trades at a 30 per cent discount to UBS.)
The nail file
This is the easiest approach. Tweak some parts of the business as rules and market conditions evolve, but stick with the idea that universal banking will eventually pay off. JPMorgan, with its insistence on the cross-selling benefits and cost synergies, fits into this category. It is making some changes — cutting costs in the investment bank by $2.8bn (or 13 per cent) by 2017, for example. But the shape of the bank is not changing.
In JPMorgan’s defence, it is making universal banking work much better than its peers, and performs better than many specialists. It promises to deliver a return on tangible equity (which tends to produce higher numbers than straight ROE) of 15 per cent over the next three years, against last year’s 13 per cent. Higher interest rates, plus the possibility that the biggest fines have been paid, should help all of the universal banks.
But JPMorgan’s share price, at one times book value, suggests a degree of scepticism about the model — Wells Fargo and Goldman both attract higher ratings. The scepticism is not limited to JPMorgan. A small shareholder has forced a break-up proposal on to the agenda for the Bank of America annual meeting, and plans to push similar proposals at Citigroup and JPMorgan.
The banks are not unfamiliar with break-ups. In recent years JPMorgan has advised Liberty Media, CBS, Time Warner and News Corp on their demergers or spin-offs, according to Dealogic. The objection is that the costs of a split would be huge. And so they would. But that is no reason to stick with a failing business model which, over the long term, will destroy more value than the one-off shock of a break-up.
And this is just the moment when the model should not be failing. The US economy grew 2.2 per cent last year and is forecast to grow 3 per cent this year. Such conditions ought to be good for US banks, despite the drag from low interest rates. The sun is shining; the universal banks ought to be making hay. But they are not. Even the best of them only just covers its cost of capital.
For the universal banks, then, 2015 is a critical year. If they cannot make the model work, they should admit that the nail file has failed — and get out the axe.

WWD : Currency Shake-up Rattles Fashion World

LONDON — The plummeting euro and the pumped-up dollar have made for one strong cocktail of pleasure — and pain — for businesses and consumers on both sides of the Atlantic.
The new currency normal has left European companies rejoicing about cheaper exports, fatter bottom lines and the potential to expand in the U.S. market, even as their anxieties grow about global pricing, the gray market and sourcing.
American firms, used to operating with a weak currency, are now feeling the sting of falling sales and expensive exports while U.S. tourists, who suffered for years with a feeble currency, are preparing to press their plastic into action on the Continent and in the U.K., where the pound has lost substantial ground against the dollar.
Back in January, Morgan Stanley predicted the euro would reach parity with the dollar by 2016, but earlier this month Goldman Sachs went even further and said parity could now happen as early as September.
The last time the euro and the dollar were matched in value was more than a decade ago, in late 2002.
Goldman’s latest three-month forecast for the euro is $1.02, and its 12-month projection is 95 cents. By the end of 2017, the bank expects the euro to hit a record low of 80 cents. The euro is currently trading at $1.10 while the pound equals $1.49.
Italian brands including Tod’s and Salvatore Ferragamo already saw their European holiday sales rocket due to tourists — and in particular the Chinese — taking advantage of the weaker euro, while airport retailers, hotel groups and the tax-free shopping firms Global Blue and Premier Tax Free are bracing themselves for a wave of Chinese and U.S. tourism to crash over Europe this year and next as the American economy gains steam and the dollar strengthens.
Prices for soft luxury goods are now 60 percent higher in Mainland China than they are in the euro zone, compared with the traditional 50 percent, according to a report earlier this month by Exane BNP Paribas. The price gap between the U.S. and Europe for soft luxury is also at an all-time high.
In the U.K., Global Blue is already drooling at the prospect of a spike in American tourism. While the pound remains more powerful compared with the euro, it has lost about 10 percent of its value against the dollar over the past 12 months.
Gordon Clark, country manager for the U.K. and Ireland at Global Blue, said the U.S. is already one of the top 10 spending nations in the U.K., with an average 575 pounds ($876) per transaction. “As the exchange rates sway in their favor, American shoppers will flock in,” he told WWD.
Retailers are at the ready.
Earlier this year, Selfridges unveiled a customer-services space catering specifically to the needs of foreign tax-free shoppers. The store said it invested “multimillions” in the new fourth-floor space, which has its own Tax Refund Lounge, two Tax Free processing halls, and VIP areas for high-net-worth individuals.
In February, Harvey Nichols organized its largest-ever Chinese New Year celebrations, with a special edit of products across fashion, beauty and food. It also worked with top Chinese chef Ching-He Huang on a special “Yin & Yang” menu at its restaurants.
A spokesperson for the store said that for the month of February, Chinese customers were “the most significant in terms of footfall and spend of all our international customers.”
According to Global Blue, the Chinese were the top-spending nationality worldwide in 2014, with an 18 percent increase in spending last year. According to a recent report from HSBC, the Chinese now represent “close to a third” of all luxury sales, with more than two-thirds of their purchasing happening outside China. The stronger yuan — the Chinese currency has risen 21 percent against the euro over the past 12 months — and ongoing political tensions in Hong Kong are driving more Chinese tourists abroad, to Europe and other parts of Asia.
The rising spend of the Chinese in Europe is the main reason brands such as Chanel, Patek Philippe and most recently Tag Heuer have revealed plans to readjust their prices. Chanel will harmonize prices worldwide next month, slashing them in China by 20 percent and raising them by the same amount in Europe. Chanel doesn’t want to see a run on its European stores, or a gray market develop where Chinese buy the merchandise on the cheap, and sell it at big markups back home.
Analysts are divided about whether other companies will follow Chanel’s move. Luca Solca, managing director at Exane BNP Paribas, said in a recent report that most European luxury brands are reluctant to increase prices in the euro zone in order not to “close out” domestic consumers in a climate where demand remains weak.
In addition, he said: “They are also reluctant to reduce prices in China, lest the [yuan] also devalues, and to prevent harming the brand image. This state of affairs is likely to prompt more purchases to emerge in Europe, and fewer purchases to be carried out in China.”
The analysts at HSBC are of a similar mind, saying that price harmonization à la Chanel is a “neutral game eventually” and that the benefit of a weaker euro in terms of profits is far greater than the issues around pricing. The bank estimates that European companies will see a 30 percent positive impact from the weaker euro on earnings before interest and taxes, spread over 2015-2016.
“We believe that price adjustments will happen for listed companies under coverage, but we do not expect something as extreme as what Chanel just announced,” HSBC wrote. “We are not convinced many other brands would significantly increase price points short term as there is a risk of alienating what little is left of local European consumer interest.” The report added that luxury price increases in the euro zone could be about 10 percent at most, and be gradually implemented over the next 12 to 18 months.
Hermès has already said it cannot afford to alienate its local European customer. “Raising prices significantly in Europe at this stage would involve sacrificing to a degree this local clientele for reasons of global strategy, and for the moment, we don’t want to do that,” said Axel Dumas, chief executive officer of the group, adding the company would take a further view on pricing toward the middle of this year or in early 2016.
As concerns spread about how much, and where, the Chinese are spending on luxury, the big European players are also looking at the impact of another market on their businesses — the Russians.
According to Barclays in London, international Global Blue data for January showed further deterioration in spending by Russian tourists. Spending in the month slumped 51.2 percent year-on-year, compared with December’s 43.8 percent fall due to the plunge in the value of the ruble and ongoing geopolitical woes in the region. Overall, spending by Russian tourists fell by nearly 17 percent in 2014, according to Global Blue.
Pierre Denis, ceo of Jimmy Choo, told WWD earlier this month that the Russians, and in particular the ones who travel abroad, have “disappeared from the shopping scene. And that will have an impact on our sales in 2015 for sure.” He added that the traveling Chinese would offset the disappearance of the Russians.
In February, Solca of Exane BNP Paribas warned of a perfect storm to hit luxury companies that trade inside Russia’s borders. His report, “Russia Is the Next Shoe to Drop,” said luxury price increases in the eastern nation coupled with the falling ruble — not to mention international sanctions, a shrinking oil price and a declining overall economy — would damage already weak demand. He said luxury goods companies should brace themselves for a “tough start” to 2015 in the region.
The newly flush American tourist should offer some relief in coming years. Despite the sharp erosion in spending, the Russian market still remains more than three times as valuable as the American one, according to Global Blue, so there is clearly room to grow.
Kim Gray, Heathrow’s head of retail strategy, said the airport has been grooming itself in a bid to better serve the high-spending international shopper — and the Americans in particular. “New York is Heathrow’s biggest destination, and we’re always keeping an eye on that market,” said Gray. “What we’re working on now is cultivating ‘pre-awareness’ of Heathrow’s retail offer — and the glamour of travel. We want to get our American cousins excited about the airport shopping experience.”
In the month of December alone, Heathrow Terminal 5 witnessed the opening of Louis Vuitton’s first European airport store, a 3,240-square-foot unit; the first stand-alone boutique for Cartier inside an airport, and a Diane von Furstenberg “Wrap Shop” at Harrods, a pop-up store.
Hotel groups, too, are sharpening their game in the new environment and preparing for an influx of Americans and Asians.
Christiane Anstoetz, regional director of sales and marketing for Western Europe at the luxury group FRHI Hotels and Resorts, which owns the Raffles, Fairmont and Swissôtel brands, said there is no doubt that Europe is a very attractive destination right now both for U.S. and Asian customers.
“We saw the river cruise business pick up last year with U.S. customers, and we’re expecting a large increase this year — Americans are crazy about river cruises. We’re also expecting a rather larger mix of customers from Europe because they won’t want to spend abroad,” she said.
The newly powerful dollar is creating myriad new dynamics: It’s not only pumping up the dreams of the American tourist abroad, it’s also fueling the fantasies of British companies looking to set up shop in the U.S.
According to a recent study by Royal Mail, the U.S. has overtaken Europe as the top target for international expansion for the Brits, with 39 percent of online retailers surveyed saying they will be targeting the U.S., compared with 30 percent looking at European countries.
To wit, the British company SuperGroup has just acquired the exclusive rights to distribute its Superdry products in North America, terminating a 30-year license agreement granted to its partner SDUSA LLC in 2008. “Strategically, taking control of our product and presence in North America is an important and natural step in realizing our ambition to create a global business,” said Euan Sutherland, SuperGroup’s ceo.
The powerful dollar has been decidedly less good for U.S. companies that rely on international trade and tourist traffic. The strong dollar is expected to have a broad impact on American multinational companies that are publicly traded. Analysts said last week that about half of the earnings of companies that are in the S&P 500 are derived from foreign sources of revenue. A strong dollar against the euro and other currencies can drag down first-quarter profits by as much as 1 to 2 percent, according to analyst reports.
It is also damaging many European companies’ sourcing strategies.
American goods are now more expensive in the eyes of the traveling Europeans and Chinese, and American companies’ quarterly results have begun to suffer as they translate sales and profits made in foreign territories back into dollars.
Until recently, Burberry, Kering, Ferragamo and Richemont all suffered from — and complained bitterly about — similar headwinds when the euro and pound were at their height. Indeed, they watched their worldwide takings shrink when they translated them back into powerful home currencies.
With regard to sourcing, the new age of the strong dollar will have a major impact on companies’ profit margins going forward.
The luxury players are, for the most part, in a sweet spot: A significant portion of luxury goods firms’ costs are euro-based, while nearly half of sales are in dollars or dollar-pegged currencies, good news for those companies’ profit margins.
Fast-fashion players, many of which have big sourcing bases in Asia, are seeing a very different dynamic since the currencies are pegged to the dollar. Last week, Nils Vinge, head of investor relations at the fast-fashion giant Hennes & Mauritz, bemoaned rising sourcing costs due to the strong dollar. “It’s difficult to offset the magnitude of the sharp increase in the dollar. The impact has been significant,” he said.
He revealed that H&M buys in different currencies, sources 20 percent of its volumes in Europe, uses dollars for its sourcing in Asia, and hedges on a daily basis from the day an order is placed to when that supplier is paid.
Asked whether the company would consider changing its sourcing plan due to the strong dollar, he said: “You can’t just jump back and forth between suppliers.”

>>> Cie Fin. Richemond - Confirms deal talks between Yoox and Net-A-Porter With

Confirms deal talks between Yoox and Net-A-Porter With reference to what has appeared in the press, Compagnie Financire Richemont SA clarifies that discussions are currently underway with YOOX S.p.A. regarding a potential business combination between YOOX S.p.A. and The Net-A-Porter Group Ltd.The Company will update the market as appropriate in due course and cannot comment further at this stage.

>>> UnitedHealth Group - Announces unit OptumRx to merge with Catamaran in a $12

Announces unit OptumRx to merge with Catamaran in a $12.8B deal 

OptumRx and Catamaran Corporation services and technology solutions, announced today they have agreed to combine. OptumRx is UnitedHealth Groups [NYSE:UNH] free-standing pharmacy care services business.

The agreement calls for the acquisition of Catamarans outstanding common stock for $61.50 per share in cash. The transaction is expected to close during the fourth quarter of 2015, subject to Catamaran shareholders approval, regulatory approvals and other customary closing conditions. The combination diversifies OptumRxs customer and business mix, while accelerating its technology leadership and flexible service offerings.

The acquisition is expected to be accretive to UnitedHealth Groups net earnings in the area of $0.30 per share in 2016. UnitedHealth Group plans to finance the acquisition from existing cash resources and new debt. The company affirmed its $6.00 to $6.25 per share earnings outlook assuming the absorption of all merger costs, the ongoing commitment to advance its dividend policy as planned, and a continued but moderated level of share repurchase.

Upon closing, Mark Thierer, Catamarans chairman and chief executive officer, will serve as chief executive officer of OptumRx and Timothy Wicks, the current chief executive officer of OptumRx, will become president. Jeff Park, who currently serves Catamaran as executive vice president, Operations, will become the chief operating officer for OptumRx. Jeffrey Grosklags, currently the chief financial officer of OptumRx, will continue in that role.

>>> Hyperion(HPTX) Horizon Pharma plc to acquire co for $46/shr cash in $1.1B de

Horizon Pharma plc to acquire co for $46/shr cash in $1.1B deal; deal to be immed accretive - Horizon Pharma plc (NASDAQ: HZNP) and Hyperion Therapeutics, Inc. (NASDAQ: HPTX) today announced they have entered into a definitive agreement under which Horizon Pharma will acquire all of the issued and outstanding shares of Hyperion's common stock for $46.00 per share in cash or approximately $1.1 billion on a fully diluted basis. The per share consideration represents a premium of approximately 35 percent to Hyperion's volume weighted average price for the trailing 60-days. The proposed transaction has been unanimously approved by both companies' boards of directors.

RTR - Fidelity moves to end DuPont proxy battle - sources

(Reuters) - Fidelity Investments, a major investor in DuPont (DD.N), has put pressure on activist fund Trian Fund Management LP and the chemical conglomerate to reach a settlement in what it sees as a detrimental proxy fight, according to people close to the matter.

Fidelity, whose 2.5 percent stake makes it DuPont's sixth largest shareholder, has not publicly revealed what sort of compromise it was seeking. Yet its unusual intervention as peacemaker could influence other mutual fund investors in DuPont and pre-empt what could be this year's biggest battle over board representation.

In a filing with the U.S. Security and Exchange Commission last Wednesday, Trian disclosed that on March 11 it received a call from one of DuPont's largest stockholders encouraging Trian and the company to resolve the proxy contest and avoid a costly and disruptive conflict. It did not disclose the name of that investor, but those familiar with the matter said it was Fidelity, the second largest U.S. mutual fund company.

A Fidelity spokesman declined to comment. DuPont and Trian reiterated their positions, but declined to comment on Fidelity's involvement.

"Since 2009, DuPont has been executing a transformational strategy that is delivering superior results," a DuPont spokeswoman said.

"In direct contrast, Trian has a singular, value-destructive agenda to break up and add excessive debt to DuPont, which we believe would put shareholder value at risk," she added.

A Trian spokeswoman rejected the criticism.

"We have met recently with many of DuPont's largest stockholders and our ideas clearly resonate with them," she said. "We believe that Trian's presence on the board will help to drive sales, margins, and earnings growth at a company where EPS (earnings per share) is expected to be lower in 2015 than in 2011 for the fourth year in a row."

Trian, which owns a 2.7 percent stake in DuPont, is pushing for the appointment of four of its own directors at the company's annual shareholder meeting on May 13. The slate includes Trian's co-founder and Chief Executive Officer Nelson Peltz, who has requested a seat on the board since earlier this year.

DuPont, which has a market capitalization of $65 billion, named two of its own nominees, Ed Breen and Jim Gallogly, as directors last month. In an attempt to end the proxy war, the Wilmington, Delaware-based company has said it is prepared to accept one of the fund's nominees, but has refused to add Peltz to its board. [ID:nL3N0WP50E]

DuPont had said it would spin off its performance chemicals business. Peltz also wants the company to separate its volatile but cash flow-strong materials businesses from its nutrition and health, agriculture, and industrial biosciences divisions.

DuPont has rejected the proposal, stressing that keeping its businesses together would allow the company to benefit from its science platform, global scale, market access and brand.

SHAREHOLDERS DIVIDED

Over the past few weeks, both camps have been lobbying with DuPont's top 30 to top 40 investors, the sources said.

A Reuters poll of investors who hold about 48 million DuPont shares representing 5 percent of the company, found them split on Trian's board representation.

"We bought DuPont before this happened, and we do think this is, at minimum a distraction, at maximum a dislocation to the plan that is in place," said Robert Zagunis, managing director of Jensen Investment Management, which owns 1.8 million DuPont shares. "We want this to be resolved, and with DuPont winning the proxy."

Others disagreed. "We think the board needs to make decisions in the boardroom to maximize value. Trian brings one perspective for them," said Aeisha Mastagni, an investment officer for California State Teachers' Retirement System, which held about 3.6 million shares as of Feb. 28.

Makor - Lafarge/Holcim conversation with proxy adviser

Over the weekend bloomberg reports that Holcim Ltd.’s second-biggest shareholder, Eurocement Holding AG, plans to vote against the Swiss company’s merger with Lafarge SA, even after the cement makers last week agreed on new terms and management changes to placate investors.
We conversed with a proxy adviser that will work for both Holcim and Lafarge.
We understand that the proxy adviser has tried in the recent past to get a comment as to Eurocement’s intention to vote without success, we understand from our conversation that the potential lack of support from Eurocement is not a surprise.
Further, the proxy believes Harris acts as an activist at times and a long term value investor
Holcim expects to ask its shareholders for merger approval at a shareholders' meeting. The next meeting could be early May.
There is only ONE vote by Holcim shareholders for the capital increase. With this vote they vote for the merger. No additional votes.
Holcim need to get twothirds support from their shareholders.
In 2014 only 66,94% of the Holcim issued share capital was present /represented at the General Meeting, in 2013 only 61.2%
At similar percentages, 23pct is needed to block the merger.
Eurocement has c11pct and thus would need to find an additional 12pct support to block the merger
Meaning, Eurocement and Harris votes are not enough to block the capital increase/merger. Broad Holcim shareholder support would be needed for it to fail and consensus seems to be in favour of a merged entity