A German fund firm is considering legal action against Lafarge over the French cement company’s plans for an $800m merger of two Russian subsidiaries.  
 
Wermuth Asset Management said the merger valuations ascribed to JSC  Voskresenskcement and JSC Uralcement were flawed and unfair on minority shareholders in JSC  Voskresenskcement.
 
"In spite of the imperfections of Russian legislation, of which we are aware, we are prepared to take legal actions against  Lafarge Group or any of its subsidiaries," Sergey Ezimov, analyst at Wermuth, told Reuters.  
 
Lafarge Group owned 92 per cent of JSC Uralcement at the end of March and 87.5 per cent of JSC Voskresenskcement, Ezimov said.  
 
The Greater Europe Fund Ltd. and The Greater Europe Deep Value Fund Ltd, advised by Wermuth, owns 2.2 per cent of JSC  Voskresenskcement, but could end up with less than one percent of the merged company.  
 
A  Lafarge spokeswoman said the company had followed the proper procedures.  
 
"The exchange ratio has been determined on the basis of a fairness opinion rendered by an independent expert acting in the interest of all shareholders, and the merger transaction is being carried out in full compliance with the Russian law," she said.  
 
Wermuth’s calculations show that the deal would mean the issue of 245,000 new JSC Voskresenskcement shares. It said the deal is structured so that Uralcement shareholders get one new Voskresenskcement share for every 1.67 Uralcement shares they hold.  
 
"The interests of minority shareholders are severely violated ... current shareholders of JSC Uralcement will receive more than half of the merged company," Ezimov said.  
 
"The proposed conversion rate would be a major disaster for shareholders in JSC  Voskresenskcement, which is by far the more valuable company."  
 
Voskresenskcement has a market capitalisation around $450 million and Uralcement is valued around $350m.  
 

Ezimov said Wermuth had talked to  Lafarge but that talks "did neither result in a satisfactory revaluation nor an acceptable analysis of why JSC  Voskresenskcement should cost less than JSC Uralcement." The Lafarge spokeswoman would not say whether any talks had taken place.  
 
He also cited Voskresenskcement’s location near booming Moscow and Uralcement’s position in the Urals where demand is relatively weak as reasons why the valuation was wrong.  
 
"For the foreseeable future,  Voskresenskcement’s pricing power will remain considerably better than Uralcement’s," Ezimov said. "The average selling price of cement is much lower in the Urals than in the Moscow region."