Lafarge Investor Skepticism Surges As Holcim Merger Threatened
By Inyoung Hwang
(Bloomberg) — As Holcim Ltd. seeks better terms for its planned deal with Lafarge SA, fading confidence that the world?s biggest cement merger will happen is pushing investors to protect their money.
The cost of bearish Lafarge contracts jumped to an almost two-year high versus bullish options on Monday, data compiled by Bloomberg show. The stock slumped the most since November 2011 and lost another 2.5 percent on Tuesday.
Disagreements over the leadership and financial terms of the merger are threatening the $40 billion deal, and investors are focusing on hedging against more declines in Lafarge shares. The French company stands to be the bigger loser if the deal falls apart as it would face increased competition from Holcim, whose revenue and cash from operations have dropped less since the combination was announced last April.
?Investors who have large positions long Lafarge and short Holcim are looking to further hedge themselves now against a break,? said Ben Kelly, an event-driven analyst at Louis Capital Markets in London. ?It may be difficult to unwind everything in the market so investors are looking at ways to protect themselves, and using puts is one way to do that pretty effectively.?
Trading of bearish Lafarge options on Monday was three times greater than its one-month average and almost 11 times more than call volume, data compiled by Bloomberg show.
While 927 Holcim puts changed hands — more than calls — the volume of bearish contracts was lower than the average for the past month.
Holcim said it won?t pursue the planned combination in its present form, pushing Kepler Cheuvreux to cut the chances of the merger happening to below 50 percent from 95 percent.
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