FT : Holcim and Lafarge rethink €41bn deal


Holcim and Lafarge, Europe’s two biggest cement groups by sales, are in talks to renegotiate the terms of their €41bn merger after a divergence in the value of the two companies over the past year.
According to people familiar with the matter, the two sides are holding discussions that might result in changes to the terms of the one-for-one share deal announced last April.

A combination would create a cement and crushed rock powerhouse in many of the largest markets, with revenues of €40bn annually but a reduced European presence.
In recent weeks, however, Holcim shareholders have raised concerns over the terms of the deal.
A representative for the family of Thomas Schmidheiny, the Holcim founder and its largest investor with a fifth of the shares, told Reuters on Monday: “The industrial logic of the deal is undisputed.” He did not comment on the price.
The remarks came after a SonntagsZeitung report at the weekend that Mr Schmidheiny wanted the terms of the deal renegotiated.
Holcim’s second largest shareholder, Eurocement, which is owned by Russian Filaret Galchev and holds 10 per cent of the shares, has not publicly supported the deal. Eurocement declined to comment.
Holcim spokesman Peter Stopfer said: “The status remains unchanged. Both companies continue to work on different workstreams to complete the planned merger. We cannot comment further.”
Lafarge declined to comment.
Switzerland-based Holcim has outperformed its French rival since the transaction was announced. Its valuation has also benefited from the Swiss franc’s appreciation.
In euro terms, shares in Holcim have returned a total of 6.8 per cent versus a loss of 0.6 per cent for Lafarge shares. Holcim is worth €23bn to Lafarge’s €18.5bn. That compares with respective values last April of €21bn to €18.4bn.
News of the latest discussions comes just weeks before Holcim was expected to hold a shareholder vote, where it will need two-thirds of those present to approve the deal.
Both companies have been at pains to present the deal as a merger rather than a takeover although, even under the deal’s original terms, Holcim would have paid a small premium to acquire Lafarge.
Any change to the share exchange ratio would be likely to stir political controversy in France, where the government has resisted takeovers of domestic companies by foreign rivals.
The deal — which potentially ran foul of competition rules in at least 13 countries, including Canada, France and Spain — was partially approved by the European competition authorities in December.
Remedies proposed by Holcim and Lafarge to address EU concerns involved disposing of one company’s assets in most of the European countries in which the new combined company would operate.
In February the two companies agreed to a series of asset sales to their smaller Irish rival CRH for €6.5bn.

(Exane) Automotive - Geneva Feedback : confidence Builds

with multiple tailwinds at their back, it’s perhaps little wonder management teams were in buoyant
mood at our Geneva auto conference last week. Excitement is building on prospects for the
European market recovery, and EM fears are gradually receding (for now). We increase our TPs
for PSA (+), FCA (+), RNO (=), DAI (=) post the conference – but all for different reasons.


* The themes that stood out: EU confidence, still-weak tyres, M&A
The dominant theme in Geneva this year was one of rising confidence in the strength of the
European recovery, where the clear message is that the start to 2015 has surprised to the upside,
leaving current EU volume expectations of 1-3% looking very conservative (Exane +4.4%).
However, tyre volumes look set to remain weak in the passenger, truck and mining divisions for the
bulk of H1. Meanwhile M&A has clearly moved up the agenda in 2015, with bolt-on acquisitions
targeted by suppliers, and mega-mergers speculated for OEMs.

The stocks that stood out: Faurecia (+), FCA (+), Michelin (-), PSA(+), VW (+)
While all 15 corporates at the conference had a story to tell, five stood out: 1) PSA, where input
cost and finco tailwinds may be overlooked; ii) FCA, where Ferrari valuation expectations keep
rising; iii) VW, where the all-important auto business seems to be performing well; iv) Michelin,
where net pricing relief may not be evident until H2; and v) Faurecia, where margin expectations
may still be too low. Full detailed notes are included inside this note.

Upgrading estimates & TPs at FCA, PSA, RNO & Daimler
We also use this note to update our estimates and TPs for a number of OEMs to reflect i) stockspecific
insight from the conference; ii) the latest FX rates; and iii) a cut to our Brazilian FY market
forecast (now -10%). This means we hike our TPs at PSA (+) to EUR19.0 (higher 16’e auto
margins); at FCA (+) to EUR16.5 (Ferrari now at EUR8.6bn EV); at RNO (=) to EUR95 (higher cost
savings); and at Daimler (=) to EUR92 (marking to latest FX spot). We hiked our BMW (-) TP to
EUR108 earlier this week (FX), and will update our VW (+) model post the release of detailed FY
results on Thursday.

--> Comnet on Peugeot :
– M&A: As sector balance sheets improve, discussion focused far more on M&A than
in prior years. PSA management were open minded regarding the possibility of a future
merger, but of course stopped well short of commenting on the speculation of the tie-up
with FCA that dominated our discussions with investors (we see the two as a good
potential fit). We also note with interest that the topic of the Renault-Nissan Alliance
structure is starting to again become a bigger topic in Renault meetings. Shorter-term
however, M&A activity is more likely in the supplier space, where most remain on the
lookout for non-organic growth opportunities.

FT : Fed rate rise is overdue, says Bullard

The end of the Federal Reserve’s near-zero interest rate policy is overdue given the rapid pace of improvement in the jobs market, a senior policy maker has said.
James Bullard, head of the Reserve Bank of St Louis, said that the Fed risked holding fire too long on rate hikes given the tumbling unemployment rate and that even after the central bank starts tightening, monetary policy will remain easy by normal standards.

US employers added 295,000 jobs in February, figures released on Friday showed, in defiance of bad weather, and the unemployment rate fell to 5.5 per cent, the lowest level since 2008, triggering a spike in bond yields and the dollar. By autumn the rate of unemployment should be below 5 per cent — near levels it had last seen in the “bubble years” of the 1990s and 2000s — Mr Bullard said.
“We are a little bit too late in this process,” Mr Bullard said in an interview, arguing that the jobless rate had already fallen in line with Fed estimates of its long-run rate and that, netting out oil price effects, inflation was not that far below target. “Those kinds of readings on the economy are not sufficient to rationalise the zero policy rate.”
Mr Bullard, who does not vote on rates this year, has recently been at the aggressive end of the spectrum among Fed policy makers when advocating tighter monetary policy. He spoke on Monday before the Federal Open Market Committee goes into its customary blackout ahead of a policy meeting next week at which it is expected to drop a previous pledge to be “patient” before lifting interest rates.
Mr Bullard said the US had entered a period where the data were “a little softer” early this year, but that this was likely due to the temporary impact of bad weather on the northeast of the country. “To the extent we have had weakness in the first quarter it will probably bounce back in the second quarter, as it did last year,” he said.
Even if the Fed raises rates as soon as June, Mr Bullard said, it was more or less guaranteeing what would traditionally be called “very easy monetary policy” over the next two years because hikes would be gradual and data-dependent.
This came at a time of a “rapidly improving situation” in the economy. “I think we have to move now or soon, in order to be in the right position as the economy continues to evolve,” he said.
Mr Bullard said he worried that investors are understating the likely upward path of interest rates compared with the Fed policy makers’ own forecasts. The sharp move in bond yields following the jobs report on Friday showed how “abrupt this kind of thing can be”, he warned. “It would be an improvement if the Fed and the markets were more or less on the same page about how this is going to evolve going forward. We are not there today.”

He drew a parallel to 1994, when the Fed provoked a bond market rout by surprising traders with sharp rate hikes. “It was a very volatile period because markets were out of sync with what the Committee had in mind in terms of the normalisation of rates,” he said. “If we could smooth out that process some I think that would be good, and not get into the situation where we have to make very aggressive moves in order to catch up.”
Some observers have urged the Fed to hold fire on rates until there is a stronger rise in wages, but Mr Bullard dismissed that argument. Wages were a lagging indicator, not a leading indicator of inflation outcomes, he argued, adding that current earnings growth should not be compared with the performance of the 1990s, when there was much higher productivity growth. “With this kind of improvement in labour markets surely wage growth is not that far behind,” he added.
Another argument for caution on rate rises is the soaring dollar, which is likely to squeeze US exports. However, Mr Bullard argued that it was “not so clear going forward that we will see big moves in the dollar the way we have”, because the European Central Bank has now embarked on its quantitative easing plans and traders are more realistic about the US interest rate outlook. “A lot has been priced in at this point” in currency markets, he said.
Commentators have pointed out that inflation is likely to be low going into the FOMC’s June meeting, which could also make it awkward to raise rates. However Mr Bullard discounted that concern.
Recent upward movements in market-based inflation expectations were encouraging, he said, adding: “It is a story about the outlook for inflation, not the actual level of inflation, at the time of the June meeting. If inflation expectations are at reasonable levels and we can make a case that inflation is likely to return to target that will be a reasonable basis for a rate increase.”