Lafarge's CEO seen as brake on merger

In less than a year, Lafarge SA Chief Executive Officer Bruno Lafont has gone from celebrated co-architect of the world's biggest cement merger to one of the deal's main obstacles.

Holcim Ltd, which in April agreed to a $40 billion merger with Lafarge, is pushing for an executive other than Lafont to lead the new entity, according to people familiar with the matter. The Swiss company is questioning his ability to reach saving targets because Holcim has outperformed Lafarge on everything from sales to profit since the deal was announced, they said. Lafont and Holcim managers have also clashed over issues including strategy, they said.

The dispute over leadership by the 58-year-old Frenchman shows how a clash of personalities can become the biggest liability in mergers. The gum-chewing, cigar smoking Lafont and the soft-spoken Holcim CEO Bernard Fontana, who was due to remain in his post until the merger completion, have disagreed on key issues from the start, one of the people said.

Management changes

Holcim on Tuesday said it won't pursue the planned combination in its present form and wants Lafarge to accept management changes and a stake of less than the initially agreed 47 percent in the combined business. Paris-based Lafarge, in turn, said it's willing to compromise on the exchange ratio, though not on leadership or other terms.

Both companies declined to comment on any differences beyond their official statements.

For Lafont, becoming CEO of the combined entity would mean handing greater control to other executives as he would relinquish the combined titles of chairman and CEO, which he has held at Lafarge for eight years.

While Lafont is an experienced dealmaker, some of his acquisitions turned sour. In 2007, he oversaw the purchase of cement operations from Egypt's Orascom Construction Industries for 10.2 billion euros ($11 billion), saddling the company with debt just as construction activity slowed.

The debt eventually led to Lafarge losing its investment grade status. It also increased exposure to countries that have recently been hit by war, terrorism or political turmoil, including Egypt, Iraq, Syria and Nigeria, raising concerns among some investors about Lafont's strategy.

Tough calls

Still, the current haggling over leadership and terms isn't a surprise because Lafarge's weaker position has emboldened Holcim shareholders to seek better terms, according to several investors.

"Ultimately, it is a question of control, with Holcim aiming to extract a greater say in the new company," said Robert Gardiner, a analyst at Davy. "And change in the proposed CEO may suggest some difference of opinion in future direction."

Lafarge advisers are concerned that Holcim is using the management demands as a reason to reduce the price of the deal, or kill it altogether, according to one of the people. Finding a Lafarge executive other than Lafont to run the combined entity could be difficult, that person said.