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Argos’ art of the nine-figure deal

By Don Marsh

Colombia-based Argos S.A. demonstrates in its latest investment the credit facilities and drive to build multiple U.S. cement and concrete platforms, perhaps competing for acquisitions with expansion-minded peers on the order of Oldcastle Materials and Summit Materials.

Pending U.S. Federal Trade Commission approval, Atlanta-based Argos USA LLC will acquire Essroc Cement’s Martinsburg, W.V., cement plant and seven terminals in Virginia, Maryland and Pennsylvania, plus a Lehigh Cement terminal in New York. The $660 million transaction is scheduled for a fourth quarter closing and central to the phased, July-August merger of Lehigh Hanson and Essroc Cement parent companies, HeidelbergCement AG and Italcementi S.p.A. Invoking concerns of market concentration attending a merged Lehigh–Essroc business, the FTC stipulated sale of the 2.2 million ton/year Martinsburg mill and cement distribution facilities in a consent agreement with HeidelbergCement and Italcementi.

The assets were to be sold to an approved buyer within 120 days of the HeidelbergCement–Italcementi union. The consent agreement settles charges that the $4.2 billion merger would likely harm competition in four regional markets for portland cement: Baltimore-Washington, D.C.; Richmond and Virginia Beach-Norfolk-Newport News, Va.; and, Syracuse, N.Y. Alleged competitive harm in a fifth market was averted shortly after the FTC announcement by Essroc’s sale of an Indianapolis terminal to Cemex USA.

An agency complaint argued that a) the merger as originally proposed would reduce the five markets’ number of competitively significant cement suppliers from three to two; and, b) without a remedy, the merged business would be more likely to unilaterally raise prices in the markets and ease conditions for peers to coordinate successfully to raise prices. The allegations mirror those behind a sweeping FTC order that compelled Lafarge North America and Holcim (US) Inc. to sell key assets—the bulk to Summit Materials in a $440 million deal—concurrent with their parent companies’ formation of LafargeHolcim Ltd. in July 2015.

Essroc Martinsburg is the most modern cement operation serving Mid-Atlantic markets. Along with the terminals, it represents a fifth platform for Argos S.A. and Cementos Argos. Over a 12-year span, they have positioned Argos USA as a top five ready mixed concrete producer and leading Southeast cement source through nine-figure deals involving Ready Mixed Concrete Co. of the Carolinas; Southern Star of Texas; Lafarge North America’s Southeast operations; and, Vulcan Materials’ Florida Rock division (cement, concrete). The Essroc play brings Argos USA’s investments north of $2.2 billion, and ushers the producer into a 10th state.

“This acquisition strengthens our internationalization and market diversification strategy and leverages our presence in the United States, allowing us to create operational and logistic synergies thanks to the proximity of this new plant to our other markets,” said Cementos Argos CEO Juan Esteban Calle, announcing the Essroc deal. “Additionally, it facilitates access to knowledge about strategic principles for our company, such as energy efficiency and use of alternative fuels.”

The investment strengthens the Argos USA logistics network: Four of the cement terminals are located close to key population centers, four have maritime access and four have rail access. It allows the producer to supply new markets with strong per capita cement and concrete consumption across such states as New York, New Jersey and Maryland, plus Washington D.C.

The HeidelbergCement–Italcementi and Lafarge-Holcim mergers are reshaping the global and North American cement, aggregate and concrete business, and spurring opportunities for companies that were little known or did not exist a decade ago. Investor confidence in nine-figure transactions of the recent Summit Materials and Argos USA variety is a solid indicator of asset quality and U.S. market outlook.

Don Marsh, [email protected]