German fund pursues Russian dispute with Lafarge

German fund pursues Russian dispute with Lafarge
Published: 18 June 2007

A German fund firm said on Friday it has asked the Russian authorities to stop Lafarge from issuing new shares in a Russian subsidiary, which the French cement maker is planning to merge with another subsidiary.  
Wermuth Asset Management has already said it is considering legal action over Lafarge’s plans to merge Russian cement companies JSC  Voskresenskcement and JSC Uralcement as it believes the deal is flawed and unfair to minority shareholders.  
The two firms are valued at a total of about US$800m.  
"We asked officials to intervene and to prevent registration of new Voskresenskcement shares," Sergey Ezimov, analyst at Wermuth, told Reuters.  
"We also preserve the right to use other legally authorised levers to protect Voskresenskcement’s minority shareholders’ rights," Ezimov added.  
Such action was decided in case  Lafarge -- the major shareholder -- sought to push the decision at an extraordinary general meeting scheduled for June 18, Ezimov said.  
The Russian financial markets watchdog, the Federal Service for Financial Markets, would not confirm whether it had received Wermuth’s request and a spokewoman said all correspondence was confidential until a decision had been made. 
Lafarge reiterated that the exchange ratio for the merger had been determined on the basis of a fairness opinion given by an independent expert, which the Paris-based company said was "acting in the interest of all shareholders." 
"We are in a classic merger process," a spokeswoman at  Lafarge said. "The merger transaction is being carried out in full compliance with the Russian law," she added. 
She declined to say whether  Lafarge had been contacted by the Russian authorities regarding Wermuth AG’s demands. 
However, a source close to the situation said  Lafarge was confident it would be able to carry out the deal.  
"This is a non-event which should not prevent  Lafarge from completing the deal," the source 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, own 2.2 percent of JSC  Voskresenskcement, but could end up with less than one per cent of the merged company.  
Wermuth said the deal is structured so that Uralcement shareholders get one new Voskresenskcement share for every 1.67 Uralcement shares they hold.  
" Voskresenskcement should not be be valued so cheaply ... Current valuation is totally unacceptable and is clearly in favour of Uralcement shareholders," Ezimov said.  
"The conversion should be one  Voskresenskcement share for every 3.82 existing Uralcement shares according to our calculations using earnings per share, earnings before interest and tax and sales per share."