By Gilles Guillaume and Leila Abboud
PARIS (Reuters) - Lafarge 's (PA:LAFP) board was set to meet on Tuesday to consider new, less favourable terms in an effort to save its cement industry mega-merger with Holcim (VX:HOLN), a source familiar with the situation said.
Switzerland-based Holcim called a halt to the deal in its current form on Monday, pressing for the price and governance to be altered from the original marriage of equals, which calls for Lafarge boss Bruno Lafont to be chief executive of the combined group.
But the French side will not accept to re-open negotiations on governance, the source confirmed ahead of the board meeting. The merger agreement calls for a board of seven members from each side.
"The board cannot give satisfaction to Holcim on all points," the source said. "It cannot accept both a change of parity and a taking of control."
Holcim and Lafarge agreed in April last year to create the world number one cement group and presented the deal as a merger of equals via a 1-for-1 share swap, but Holcim shareholders have in recent weeks been demanding better terms as the earnings outlooks of the two companies have diverged.
On Sunday, Holcim said it wanted to open talks on the exchange ratio and on "governance issues" because the original merger terms were no longer acceptable to its board.
Lafarge said on Monday that it would consider revising the share exchange ratio, but nothing else.
According to another person familiar with the situation, Holcim has proposed changing the agreed one-for-one share exchange ratio to 0.875 Holcim shares for each Lafarge share, but the French company wants a 0.93 to 1 ratio.
Holcim and Lafarge have predicted the merger will lead to cost savings of 1.4 billion euros annually.
"Both of them have a lot to lose if the deal fails, but the share price moves in recent days show that Lafarge arguably has more to lose than Holcim," said a Paris-based analyst who did not want to be named.
Lafarge shares fell 6.2 percent on Monday and were down a further 1.3 percent at 1213 GMT on Tuesday. Holcim shares lost 1.3 percent on Monday and another 1.3 percent on Tuesday.
The analyst noted that the combined group would have a return on investment of around 10 percent while separately they now achieve 5 or 6 percent. Both groups have cost savings plans in place that aim to improve profitability but if they go ahead separately, such efforts would only get them to roughly 8 percent return on investment.