LafargeHolcim battles to build on merger
by Alice Baghdjian,
2016-03-17 05:50:00.0
ZURICH — Less than a year after one-time French and Swiss rivals combined to create the world’s biggest cement company, LafargeHolcim is testing investors’ patience amid a sagging stock price, management departures and earnings that stand to disappoint.
The Zurich-based company has lost 40% of its value since trading began in July, faring far worse than HeidelbergCement, the region’s No2, and the Stoxx 600 Construction and Materials index. Chairman Wolfgang Reitzle is leaving, the latest in a slew of executive departures, as CEO Eric Olsen struggles to stitch together two corporate cultures, disparate teams and globe-spanning operations to wring promised synergies from the merger.
"The barriers to the deal have been underestimated," said Vincent Kaufmann, CEO of Swiss pension-fund advisory Ethos. "The challenge now is how to integrate these two very different cultures."
Lafarge and Holcim combined with the promise of more than $1bn in annual cost savings, giving them an advantage over rivals after a global recession eroded demand for building materials. Instead, the deal was troubled from the start as Holcim investors opposed some terms and turf wars broke out about key positions, leading to Mr Olsen as a compromise CEO.
Since then, a slowdown in China and Brazil and slower-than-expected asset sales have delayed benefits.
"The market is not buying the current executives and synergies," Mr Kaufmann said. "We don’t see how the share price will recover."
LafargeHolcim spokesman Peter Stopfer said: "There is a lot of potential in the merger and we have a clear plan that we shared with investors on December 1 last year. We are fully on track with our plan and will provide an update" when earnings are reported today.
The slide in the stock price "went beyond even what we imagined would happen," Bernstein analyst Phil Roseberg wrote in a March 11 note. The cement maker’s 2015 results will probably "disappoint".
Earnings before interest, taxes, depreciation and amortisation for last year are expected to be 5.73-billion Swiss francs ($5.78bn), according to an average
of analysts surveyed by Bloomberg.
That would mark a drop from the pro-forma operating earnings before interest, taxes, depreciation and amortisation of 6.5-billion Swiss francs the previous year, adjusted for merger and restructuring costs.
Compared with LafargeHolcim’s 40% share slump since July, HeidelbergCement stock has dropped 1.5% and the Stoxx 600 Construction & Materials index fell 5.3%. HeidelbergCement is also scheduled to report Thursday after last month’s lifting of a savings forecast from its 2015 purchase of Italcementi.
Bernstein analysts have cut their forecasts for LafargeHolcim’s savings on earnings before interest, taxes, depreciation and amortisation to 500-million Swiss francs by the end of 2019, from 660-million francs previously.
That is about half of what is targeted by LafargeHolcim and would take two years longer to achieve than the company has promised.
Bloomberg
Picture: THINKSTOCK
ZURICH — Less than a year after one-time French and Swiss rivals combined to create the world’s biggest cement company, LafargeHolcim is testing investors’ patience amid a sagging stock price, management departures and earnings that stand to disappoint.
The Zurich-based company has lost 40% of its value since trading began in July, faring far worse than HeidelbergCement, the region’s No2, and the Stoxx 600 Construction and Materials index. Chairman Wolfgang Reitzle is leaving, the latest in a slew of executive departures, as CEO Eric Olsen struggles to stitch together two corporate cultures, disparate teams and globe-spanning operations to wring promised synergies from the merger.
"The barriers to the deal have been underestimated," said Vincent Kaufmann, CEO of Swiss pension-fund advisory Ethos. "The challenge now is how to integrate these two very different cultures."
Lafarge and Holcim combined with the promise of more than $1bn in annual cost savings, giving them an advantage over rivals after a global recession eroded demand for building materials. Instead, the deal was troubled from the start as Holcim investors opposed some terms and turf wars broke out about key positions, leading to Mr Olsen as a compromise CEO.
Since then, a slowdown in China and Brazil and slower-than-expected asset sales have delayed benefits.
"The market is not buying the current executives and synergies," Mr Kaufmann said. "We don’t see how the share price will recover."
LafargeHolcim spokesman Peter Stopfer said: "There is a lot of potential in the merger and we have a clear plan that we shared with investors on December 1 last year. We are fully on track with our plan and will provide an update" when earnings are reported today.
The slide in the stock price "went beyond even what we imagined would happen," Bernstein analyst Phil Roseberg wrote in a March 11 note. The cement maker’s 2015 results will probably "disappoint".
Earnings before interest, taxes, depreciation and amortisation for last year are expected to be 5.73-billion Swiss francs ($5.78bn), according to an average
of analysts surveyed by Bloomberg.
That would mark a drop from the pro-forma operating earnings before interest, taxes, depreciation and amortisation of 6.5-billion Swiss francs the previous year, adjusted for merger and restructuring costs.
Compared with LafargeHolcim’s 40% share slump since July, HeidelbergCement stock has dropped 1.5% and the Stoxx 600 Construction & Materials index fell 5.3%. HeidelbergCement is also scheduled to report Thursday after last month’s lifting of a savings forecast from its 2015 purchase of Italcementi.
Bernstein analysts have cut their forecasts for LafargeHolcim’s savings on earnings before interest, taxes, depreciation and amortisation to 500-million Swiss francs by the end of 2019, from 660-million francs previously.
That is about half of what is targeted by LafargeHolcim and would take two years longer to achieve than the company has promised.
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