Stock Market Dynamics Drive Material Service Sale

We have talked this year about how much 2005 changed the fortunes of U.S. Concrete Inc. and other public concrete, cement and aggregate operators. Investor


We have talked this year about how much 2005 changed the fortunes of U.S. Concrete Inc. and other public concrete, cement and aggregate operators. Investor bullishness from last year spilled into the first quarter of 2006, as evidenced by soaring stock prices (note page 11) and Oldcastle Materials’, Florida Rock’s, and Rinker Materials’ closing on high-caliber Pioneer Concrete, Newington Concrete Corp., and Keys Concrete (note page 6). Underscoring the quality of those deals are the buyers’ plans to keep the Pioneer, Newington and Keys names.

Equally enriched by high stock valuation, Hanson Plc is trumping those transactions and potentially altering the Great Lakes region’s aggregates landscape. General Dynamics Corp. announced in late February a definitive agreement to sell its Material Service Corp. subsidiary to Hanson Aggregates North America, a company not known for dwelling on past identities. The $300 million deal is expected to be completed in the second quarter, and will end one of the industry’s longest ties between a founding family and a major aggregate and concrete brand. It will cap a three-month spending spree approaching $800 million, yielding Hanson Material Service, slag processor Civil & Marine Holdings Ltd., and the former Paver Module of Florida, now known as Hanson Paver Products.

Chicago and northern Illinois’ premier operator, Material Service has 10 crushed stone and sand & gravel sites with estimated reserves of 1.5 billion tons. In 2005, the properties logged $160 million in sales on 20 million-plus tons’ production. Material Service is best known as operator of the Thornton Quarry, south of Chicago and through which Interstate 80 runs. Thornton and sister properties figure to be brought into Hanson Aggregates East’s Midwest Region, which includes northern Ohio and Indiana sites. The deal expands the company’s annual sand & gravel and crushed stone production about 15 percent, and strengthens its number three industry position behind Vulcan Materials and Martin Marietta Materials.

The sale closes Material Service’s long run under General Dynamics, which acquired the company from Chicago’s Crown family in 1959. The business was founded as a sand & gravel brokerage in 1919 by brothers Henry, Irving and Sol Crown, who expanded into quarrying and concrete. The aggregate franchise has remained in General Dynamics’ portfolio, partly due to the influence of Material Service Chairman Lester Crown. He and two relatives are on the General Dynamics board, and their families hold about 8 percent of company stock.

The sale of the aggregate business occurs more than a decade after Material Service ramped down its Chicago and northern Illinois ready mixed, prestressed and concrete pipe properties, which ended up with Prairie Group and Cretex Cos. Material Service ranked among the industry’s elite in ready mixed, practically owning the downtown Chicago market and establishing it as the world’s proving ground for high performance concrete.

General Dynamics put the aggregates business on the block in the mid 1990s. In the apparent absence of suitable offers, Material Service remained with the company as part of its Resources Group. A General Dynamics spokesman told Concrete Products that Material Service had not been actively shopped prior to the Hanson deal. However, the aggregate industry’s early-2006 financials produced a suitor willing to pay the premium General Dynamics likely sought for rich aggregate properties strategic to the country’s third-largest population center. Leading up to the Material Service announcement, Hanson, Vulcan and Martin Marietta share prices were rising to at least five-year highs, behaving as if the companies were defense contractors and Ronald Reagan had just been re-elected president.

Ideally the Material Service name will live on, as it represents a company Concrete Products turned to for good plant and site-practice stories starting in the 1950s. But if a legendary name disappears because some readers are delivering returns worthy of darling status on Wall Street, we can lose the nostalgia.

e-mail: [email protected]