Share boost for CRH following $3.5bn US deal

Shares in CRH rose 3% after the building-materials giant announced it was to buy a leading US cement manufacturer for $3.5bn (€2.93bn), writes Pádraig Hoare.

The Irish-headquartered company would not be drawn on whether further acquisitions were planned in the US, after the deal for Ash Grove Cement, a Kansas-based firm, which reported profit-before-tax of $215m, and gross assets of $2.5bn, at the end of 2016.

Ash Grove operates eight cement plants across eight US states, combined with what CRH described as “extensive, readymixed concrete, aggregates, and associated logistics assets across the US Midwest”.

CRH had signalled its intentions last month, saying it was ready to act on what it saw as “a strong pipeline” of acquisition opportunities, in light of selling part of its US operations for $2.6bn.

As well as the $2.6bn sale of its Americas Distribution division, it agreed to acquire German lime-and-aggregates business, Fels, for €600m — a business it had courted for some time and which will fit with the group’s European Heavyside division. The acquisition, subject to shareholder and regulatory approval, extends CRH’s presence in the Midwest, New York, and the Mountain States.

CRH, which is worth almost €26bn, is the largest producer of asphalt, and the third-largest producer of both aggregates and ready-mixed concrete, in the US.

Its US operations include a cement plant in Montana, and five cement terminals in Michigan, Ohio, New York, and Minnesota.

Chief executive of CRH, Albert Manifold, said Ash Grove was an “excellent acquisition”, as it sought “to deploy our capital into high-quality businesses that enhance our global asset base and provide opportunities to create shareholder value”.

Ash Grove chairman, Charlie Sunderland, said CRH was its largest customer and the deal would “bring Ash Grove on the next phase of its development, after 135 years in operation”.

Goodbody said it was an “attractive” deal for CRH.

Analyst, Robert Eason, said: “We estimate the deal will add 4%-5% to group earnings in a financial year. Ash Grove has strong market positions in its local markets, with market share above 35% in the Midwest and over 20% in the Mountain region.”

Merrion said the deal will bring CRH’s North American cement capacity to 13.3m tonnes, from 5.3m.

However, while analysts, Dylan Simmonds and Darren McKinley, said the disposal of its Americas Distribution business, and subsequent purchases of Fels and Ash Grove, was an “excellent example” of generating value for shareholders, its mergers-and-acquisitions strategy and management’s ability to integrate new businesses had been questioned by investors in recent years.

“We believe the successful integration of Ash Grove is of paramount importance, in order for these doubts to be dismissed,” their analysis said.

CRH is set to benefit, if US president, Donald Trump’s national infrastructure plan comes to fruition. Mr Trump has yet to score a major legislative victory, but political insiders say he may turn to infrastructure, if healthcare and tax reform fail.

Infrastructure investment is an attractive proposition for both sides of the political aisle and Mr Trump could seek Democratic support for any national plan that improves the nation’s roads, highways, airports, and bridges.

This article first appeared on the Irish Examiner.


 

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