By Gilles Guillaume and Oliver Hirt
PARIS/ZURICH (Reuters) - Switzerland's Holcim (VX:HOLN) and France's Lafarge (PA:LAFP) have agreed new terms for their plan to create the world's top cement business, giving unhappy shareholders in the Swiss company a better deal but leaving a key leadership question unanswered.
While the merger is back on track after a rocky few weeks, the deal could still founder over who will run the combined entity with annual sales of more than 30 billion euros ($32 billion).
After days of intense negotiations, the two companies agreed Lafarge shareholders would now receive nine Holcim shares for every 10 Lafarge shares they hold rather than the one-for-one ratio agreed when the deal was unveiled in April last year.
The companies also agreed that Lafarge boss Bruno Lafont would no longer become chief executive, instead taking on the role of non-executive co-chairman, alongside Holcim's chairman, though they have yet to decide who will take the CEO role.
The lack of a decision on a replacement CEO leaves questions over what tensions remain between the two sides. Lafont's removal from the role, along with the realigned share exchange, also make the deal look less like the merger of equals it was presented as almost a year ago.
"This is not enough to secure the deal, and it's not the end of the story," Bernstein analysts said in a research note.
Since the merger was announced last April, Holcim investors had watched the companies' relative business performances diverge. A stronger Swiss franc also became a factor, along with questions over Lafont's style and record.
The new share-swap ratio means Holcim shareholders would own 55.6 percent of the new group, up from 53 percent previously, and the deal is now expected to close in July rather than June.
Holcim shares closed 0.5 percent higher at 76.15 Swiss francs on Friday and Lafarge stock ended 2.12 percent higher at 63.62 euros.
BRASH
Lafont's proposed role had become a major sticking point for Holcim, which threatened to abandon the deal on Sunday if the terms were not revisited. The Swiss side questioned his ability to deliver the 1.4 billion euros in promised cost savings and disliked his brash management style, sources have said.
"My attitude since Sunday has been to show that men should not prevent this merger from going through and on the contrary should do everything to make it possible," Lafont told reporters on a conference call.
Under the revised deal, Lafont will be co-chairman along with Holcim Chairman Wolfgang Reitzle. Lafont is due to propose a new chief executive in the coming weeks. A source close to the situation said the plan was for a new candidate to be named before Holcim's annual shareholder meeting on May 7.
In another change to the plan, the CEO will not be a member of the board, Lafont told Le Figaro newspaper in an interview late on Friday. A Lafarge spokeswoman confirmed the change.
RUSSIAN SHAREHOLDER KEY, NEUTRAL CEO?
The companies also said that certain key shareholders on both sides had confirmed their support for the revised merger terms.
Thomas Schmidheiny, a former Holcim chairman who has a 20.1 percent stake and is heir to the company's founder, welcomed the new agreement.
"This breakthrough was only made possible because all people involved attached more importance to the interests of the new corporation than to their own ambitions," he said in a statement.
The position of Russian businessman Filaret Galchev, who owns 10.8 percent of Holcim via Eurocement Holding AG, could be key. He declined to comment on Friday.
Nassef Sawiris, who owns 16 percent of Lafarge, told Reuters on Thursday that he backed the deal and was not worried about Holcim shareholders not voting for it.
Minority shareholders in Lafarge, which analysts say have the most to lose if the deal fails, were relieved to see it back on track. One top-20 investor suggested a neutral CEO might work.
"We've been invested in this industry for a decade, so if we get called and asked for our ideas, we will give them. There is the French-Swiss thing ... perhaps one or two egos," he said.
"If you saw an American in there, that might be interesting, maybe they could cut through the cultural differences."
The new company will also pay a scrip dividend of 1 new LafargeHolcim share for each 20 existing shares after completion. Analysts said the aim of this could be as a lock-in bonus for existing shareholders.
Bank advisers to Lafarge are Rothschild and Zaoui & Co. Holcim is advised by Goldman Sachs (NYSE:GS) and Perella Weinberg.
($1 = 0.9369 euros)