Florida Fluidity

The upper ready mixed producer ranks stand to be shuffled again with or without a deal that would combine leader Cemex USA and number two Rinker Materials

Don Marsh

The upper ready mixed producer ranks stand to be shuffled again with or without a deal that would combine leader Cemex USA and number two Rinker Materials Corp. Now in its sixth month of shareholder and regulator review, that proposed merger took a back seat in February as a second one centered on a Sunshine State blue chip emerged.

Vulcan Materials Co., the Birmingham, Ala.-based top gun in aggregates and a company that has shown limited interest in vertical integration, is poised to become a top-five player in ready mixed and likely a top 10 concrete block producer upon takeover of Florida Rock Industries, Jacksonville. The proposed deal is the eighth since 2000 in which a major cement or aggregate producer is acquiring a business that ranks among the top 10 U.S. ready mixed operators, and the first with a domestic buyer and target. Based on Vulcan’s and Florida Rock’s fiscal 2006 data and Concrete Products‘ estimates, the deal positions the buyer with annual sales of $4.3 billion and production of 300 million tons of aggregates; 10 million-plus yd. of ready mixed; 75 million-plus concrete block; and 800,000 tons of portland and specialty cements. Vulcan-Florida Rock would figure to rank third in ready mixed behind Cemex and Rinker, and ahead of U.S. Concrete and Oldcastle Materials.

Florida Rock’s concrete and cement businesses reported 2006 sales just under $1 billion. They would more than triple Vulcan’s presence in concrete and realign its portfolio whereby ready mixed, block and cement contribute more than 30 percent of revenues. Vulcan credited concrete and asphalt with 10 percent and 14 percent, respectively, of its approximately $3 billion in 2006 sales, while crushed stone, sand & gravel shipments accounted for much of the remainder. Florida Rock’s aggregate holdings, above all other assets, stand to boost Vulcan’s total reserves 20 percent, to 13.2 billion tons.

In a deal outlined Feb. 19, Vulcan will acquire Florida Rock for $4.6 billion in cash and stock. An offer of $63/share represented a 41 percent premium to Florida Rock’s New York Stock Exchange opening. We’re taking two high-performance companies and creating an even better company, said Vulcan Chairman Don James. Florida Rock further diversifies and broadens our reach and regional exposure, providing us significant presence in one of the fastest-growing markets for aggregates in the U.S.

This is an excellent opportunity for our shareholders [and] employees, many of whom could enjoy enhanced opportunities as part of an even stronger and more geographically diversified organization [with] operations in key high-growth markets nationwide, added Florida Rock CEO John Baker. He will join the Vulcan board following the transaction, while Tom Baker, his nephew and current vice president of Cement and Aggregates, becomes president of Vulcan’s new Florida Rock Division in Jacksonville. Florida Rock’s operations in Georgia, Virginia, Maryland and other states will be integrated into existing Vulcan divisions (note map, page 6).

Vulcan-Florida Rock sets the stage for a third or fourth industry mega deal in a 30-month window. Cemex’s Rinker Group takeover bid continued under regulatory review in early March, with a tender offer running through the end of the month. The deal almost certainly hinges on the suitor increasing its offer from $65/American depository receipt in response to $70-$77 range Rinker ADRs have traded since the overture. Cemex and Vulcan can afford choice targets thanks to past acquisition successes and present material prices, market conditions and earnings Û all strong or stable despite lower housing activity. What other scenarios could put in play perhaps 30 percent or more of Florida concrete capacity?

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Hanson-Pioneer 2000 $2.5 billion
Cemex-Southdown 2000 $2.8 billion
Dyckerhoff-Lone Star* 2000 $1.2 billion
Lafarge Group-Blue Circle 2001 $3.6 billion
Cemex-RMC Group 2005 $5.8 billion
Holcim-Aggregate Ind. 2005 $3.3 billion
CRH-APAC* 2006 $1.3 billion
Lafarge Group-Lafarge NA 2006 $3.0 billion
Vulcan-Florida Rock** 2007 $4.6 billion
Cemex-Rinker Group** 2007 $12.8 billion
* Limited ready mixed assets **Proposed