Martin Marietta Materials Inc. agreed to buy cement maker Texas Industries Inc. in an all-stock transaction valued at $2.7 billion to tap into a construction rebound in California and Texas, the most-populous U.S. states.
Texas Industries stockholders will receive 0.7 Martin Marietta share for each share of Texas Industries. Based on yesterday’s closing stock price for Martin Marietta, the deal would value Texas Industries at $71.95 a share, according to a statement.
Buying Dallas-based Texas Industries gives Martin Marietta an entry into the cement market as home construction bounces back, after U.S. housing starts rose 18 percent to 923,400 last year for the most since 2007. Martin Marietta produces crushed stone, gravel and sand, which are known as aggregates and are mixed with cement to produce concrete.
The purchase “would meaningfully change” Martin Marietta’s business mix because the Raleigh, North Carolina- based company lacks cement assets and gets only about 7 percent of sales from concrete, Adam Rudiger, a Wells Fargo & Co. analyst who rates the stock as market perform, wrote yesterday in a note. “Martin Marietta’s rationale for such a transaction would be to gain exposure to faster growing states.”
The combined companies forecast about $70 million of cost savings and efficiencies by 2017. The deal, which the companies anticipate closing in the second quarter, includes the assumption of $700 million of Texas Industries’ debt.
Texas Industries’ strength in California and its home state gives Martin Marietta a boost in a pair of markets whose economies together are larger than that of France. Texas Industries is the largest cement producer in Texas and No. 2 in California, where the building market is recovering after a deep housing recession at the end of the last decade.
“We strongly believe in the merits of this merger and the long term attractiveness of the US construction market,” said Nassef Sawiris, the Egyptian billionaire behind NNS Holding, in an e-mailed statement. “Once again, we are looking forward to becoming a significant and supportive shareholder in Martin Marietta and believe that the enlarged group will be uniquely positioned to benefit from the ongoing US economic recovery.”
NNS Holding, a Sawiris family investment vehicle, owns about 24 percent of Texas Industries.
The deal was described yesterday by a person familiar with the transaction, who asked not to be identified because details weren’t public. Texas Industries fell 4.7 percent to $71.54 yesterday in New York. Martin Marietta declined 1.5 percent to $102.78
Martin Marietta has tried to expand before, falling short in a hostile bid made in December 2011 for Birmingham, Alabama- based Vulcan Materials Co.
Martin Marietta, which shipped 128 million tons (116 million metric tons) of aggregates in 2012, began diversifying in 2011, including an asset swap to gain concrete and asphalt operations near Denver. Chief Executive Officer Ward Nye said in August the increase in these “vertically integrated businesses” is a way to tap growing markets.
Building-materials companies struggled through a housing and commercial-construction slump that shrank U.S. cement demand by 44 percent in the five years ended in 2010, according to data compiled by Bloomberg. Consumption in 2010 of 71 million tons was the lowest since 1980, and that figure rose only to 79 million tons in 2012, the data show.
Annual production capacity at Texas Industries, also referred to as TXI, is 6.8 million tons. The company, which operates two cement plants in Texas and one in California, has posted losses from continuing operations in four of the past five years.
Texas Industries said Jan. 8 it has announced cement price increases totaling 8 percent in Texas and 8.5 percent in California by April, citing improved construction. Over the next five years, annual cement demand will rise an average of 6 percent in Texas and 9 percent in California, Chief Operating Officer Jamie Rogers said on a conference call with analysts, citing data from the Portland Cement Association.
To meet higher demand in Texas, the company restarted an older kiln at a plant in the state, with 900,000 tons of capacity.