Fitch expects negative impact on Lafarge credit profile if Holcim merger fails

A failure of the proposed merger between Lafarge and Swiss Holcim would have negative effect on the credit profile of the French company, Fitch said.

According to the rating agency, a collapse of the merger would be credit neutral for Holcim and positive for the credit profile of Irish rival CRH because its commitment to acquire assets from the two companies hinges on the deal’s completion.

The rating agency believes the merger would come to a successful ending despite Holcim’s decision to demand renegotiation of its terms, since the deal’s strategic and operational rationale remains intact. Believing that a consensus on a revised share-exchange ratio is highly probable, Fitch says it would have a neutral effect on the credit profile of the two companies in a pure-share deal. The agency sees the coming to an agreement on changes to the agreed governance structure less likely.

“Failure to complete the merger would probably lead to the resolution of the Rating Watch Positive on Lafarge and would leave the company little headroom at its BB+ rating due to its relatively high leverage,” Fitch says.

Holcim’s BBB rating and “stable” outlook would be unaffected since the group has a business profile at the top of the natural ratings range for the building materials sector, the agency added.

A successful merger would be a precondition for CRH to buy assets from the two companies, worth EUR6.5bn. If the deal broke down, the rating watch “negative” of CRH’s BBB rating would most probably be removed because it reflects uncertainty about CRH's ability to ease the debt burden that would stem from the deal, Fitch said.