On the face of it this week's 'news' that CRH expects to receive the regulatory decisions it needs on its Euro6.5bn purchase of Lafarge and Holcim's joint divestments without significant delay is not particularly ground-breaking. However, the press release helpfully suggests that the deal will proceed according to CRH's desired outcome and only needs to be rubber-stamped. This is not strictly the case, with approval required in the EU, Philippines, Brazil, Canada and Serbia.
So... this story could just be incidental 'puffery' and the timing irrelevant. However, if read in the context of the letter concerning the acquisition from CRH Chairman Nicholas Hartery to company shareholders, it makes for a far more interesting read. Issued on 20 February 2015, the letter notifies shareholders of CRH's planned Extraordinary General Meeting (EGM) on 19 March 2015 and it starts fairly innocuously. The Chairman recommends that shareholders approve CRH's resolution to proceed with the acquisition of the LafargeHolcim assets. He describes the strong overlap between the divestments and CRH's existing portfolio, as well as the financial reasons behind the move. So far, as expected.
However, later in the document, the language gets fairly heated, bordering on bizarre in places. Hartery says that CRH has given 'hell or high-water' commitments to Lafarge and Holcim regarding the purchase This language indicates the importance of the deal to the board and possibly the level of personal involvement in the process to this point.
'What has CRH done?' we are supposed to ask. Are we led to believe that CRH has, in poker parlance, gone 'all in?' Any shareholders that are in doubt as to the board's position need look no further than the section concerning 'break fees.' If CRH backs away from the deal for any reason, for example by failing to approve the resolution at the EGM, the company will have to give a combined Euro158m to Lafarge and Holcim. This would be a sizeable headache and CRH can take no chances.
Returning to CRH's press release, its timing is even more intriguing when we consider reports out of Switzerland this week. Swiss newspaper Sonntagszeitung reports that Holcim has considered offering its shareholders a 'sweetener' to win their approval for the merger. It says that this could involve 'creative methods' to sway its shareholders into backing the deal, including a generous special dividend or a share buyback. The paper reports that Holcim is wary of not securing investor approval for a capital increase for financing, which is required for it to satisfy its side of the deal.
Holcim's actions may in turn be motivated by Reuters reports from 23 February 2015, which state that analysts have seen a potential divergence in earnings outlooks between Lafarge and Holcim as a potential 'spanner in the works' of the deal. This is in response to Lafarge's apparent poor performance relative to Holcim in the fourth quarter of 2014. Reuters even refers to analysts' rumblings that the terms of the whole mega-merger may be up for renegotiation in light of this.
CRH has said that it is prepared to move hell and high water to buy the LafargeHolcim divestments, but will it be able to if there is no LafargeHolcim from which to divest?
The full letter to CRH shareholders and associated information about the proposed CRH acquisition of Lafarge and Holcim's proposed divestments can be seen here.