So the day has finally arrived when two become one - the merger of Holcim and Lafarge has finally been completed. Although bearing in mind the complexity of the deal, the assets that required disposal, the regulatory issues that had to be resolved and the last minute adjustments to value and board positions, what has been achieved in bringing the two companies together is incredible. So now the task of actually delivering some value from this deal - the task that the shareholders will be watching with very close interest - monitoring whether the so called synergies can be achieved.
Lafarge should be no strangers to this process, having first merged with Blue Circle Industries and then a number of years later with Orascom. So where do the synergies come from? Headcount reductions have already been announced covering Head Office functions and Technical Centres, although in the latter case the size of the headcount reduction is proportionally larger than the fraction of businesses that are being disposed of by the merged group. Whilst reducing headcount, it is essential that technical performance of the businesses is maintained or increased so that the underlying savings from the headcount reductions are not eroded.
Procurement savings often come high up the list of synergy savings but often simply lead to disputes between the plants and the procurement department. The old saying "you get what you pay for" still holds true and all to often what the procurement department delivers (in their quest to deliver their challenging targets) does not meet the plants requirements - be it fuels, raw materials or spare parts.
The claimed synergies can also be eroded by the simple fact of two companies merging with very different ways of working such as the use of ERP systems. The capital cost of standardising the systems will have been factored into the savings, but what will not have been factored in will be the decision making process, the clash of cultures where each side attempts to maintain as many of their systems as possible, the delays in making a decision and the unexpected over-runs in any such IT project.
The cultures of the two companies may well be the biggest obstacle to this deal really delivering but there is always a silver lining - whilst synergy targets are often quoted for a two to three year period post merger, they generally seem to be forgotten by investors - or at least the company isn't held to account for them - after the first 18 months. So as long as year one delivers well, everyone will be happy.......maybe!