DEALTALK-Lafarge-Holcim a tale of many cities

Mon Apr 7, 2014 12:39pm EDT

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By Sophie Sassard and Anjuli Davies

LONDON, April 7 (Reuters) - The secret project to merge Holcim and Lafarge to create the world's biggest cement maker was codenamed "Cities" in reference to their fabric but it could equally have applied to the many meetings across Europe that were needed to get to the $55 billion deal announced on Monday.

It also reflects the daunting task that the two biggest listed companies in the sector now face in getting approvals across an expected 15 jurisdictions for a combine which has sales of some $44 bln from operations in 90 countries.

Holcim's chairman Rolf Soiron and Lafarge's chief executive Bruno Lafont would not say who had first approached whom about embarking on this journey.

"Do you remember when you met your wife for the first time, who approached whom first?" Soiron told a joint news conference on Monday.

But the two met in person for the first time in late January in Strasbourg, "almost neutral territory, halfway between Zurich and Paris," Soiron said.

And this was when talks really began in earnest.

"The stars really aligned," said a source familir with the matter.

"It was a good time in the equity markets, a good point in the cycle - appropriate relative valuations, a good strategic fit and shareholders were happy to own a smaller slice of the enlarged company," the source said.

Negotiations quickly accelerated after that initial meeting, and over the next few weeks the companies, alongside key advisers worked frantically to put the building blocks together with meetings held in Strasbourg, Brussels, Zurich and Paris, often at lawyers' offices.

Lafarge enlisted advisory boutique Zaoui & Co, led by brothers Michael and Yoel Zaoui alongside Rothschild's Gregoire Heuze, Francois Wat and Romain Nourtier. Morgan Stanley and BNP Paribas were later brought in to seal the deal.

Holcim's advisory team was led by Goldman Sach's FX de Mallman, global head of consumer and retail sectors but previously head of Goldman's Swiss investment banking team where he cultivated a close relationship with the company.

Banks could stand to earn up to 130 million euros ($178 million) in fees according to estimates by Freeman Consulting, which tracks bankers' fees. It calculates that on deals worth more than $25 billion, buy-side and sell-side advisors would each customarily earn advisory fees of 0.1 percent to 0.2 percent of the enterprise value (debt plus equity).

Lafont, who will become CEO of the new combine, LafargeHolcim, led the talks on his side, with Soiron his counterpart at Holcim.

Getting shareholders on board was a key element of the deal, with four billionaire shareholders in Holcim and Lafarge, said sources familiar with the matter.

Switzerland's Thomas Schmidheiny and Filaret Galchev from Russia control a total of 31 percent of Holcim, while Lafarge's two biggest shareholders are Belgian Albert Frere's holding company Groupe Bruxelles Lambert (GBL), which has a 21 percent stake, and Egyptian tycoon Nassef Sawiris, who has 16 percent, according to Thomson Reuters data.

They were not involved in the negotiations but gave an early nod that they would support the deal if it were to happen, according to sources familiar with the matter.

"Shareholders on both sides knew each other well. It was a bit like doing a deal among friends," said one of the sources.

Another key element of negotiations and one that could yet see the deal fracture, was trying to work out a roster of possible disposals.

"The fact that the companies have already announced possible divestments is a recognition that there could be problems. They are managing market expectations," said Paul McGeown, a partner at Brussels-based law firm Wilson Sonsini.

As a result the companies have already said the transaction is not expected to close until the first half of 2015. ($1=0.7303 euros) (Additional reporting by Natalie Huet in Paris, Foo Yun Chee in Brussels and Arno Schuetze in Frankfurt; Editing by Greg Mahlich)