Special Situations: Lafarge/Holcim
trade action flash - buy Lafarge / short Holcim ratio: 0.976 (currency adj); target ratio on a deal: 1.0-1:10 April 4, 2014
Holcim and Lafarge are said to be in talk to merge in what would create a cement giant. Such a deal would face significant antitrust issues which we analyze in an upcoming RARe report. Based on relative values, we expect parities to favor Lafarge over Holcim as we calculate at least a 10% valuation gap between the two companies. Based on relative values and historical share price performance, we believe a share exchange ratio of 1.1 HOLN for 1 LG to be justified. On a 1.1 ratio, Lafarge shareholders would represent just about 50% of the combined company, more or less in line with the revenue and ebitda split. Given the current stock prices as of the close Friday night, and based on our share exchange expectations, the market is pricing a deal probability of 40%, in our view way too low.
