Keeping Up With The Joneses

Two closed and two pending mega-deals define a new world order of five heavy building materials players, each with upwards of $20 billion in annual cement,

Don Marsh, Editor

Two closed and two pending mega-deals define a new world order of five heavy building materials players, each with upwards of $20 billion in annual cement, aggregate and concrete shipments. Making good on a hint early last month of a possible bid for London-based Hanson Plc, Lehigh Cement parent company HeidelbergCement AG is poised to solidify its position alongside multinational powerhouses Cemex S.A.B. de C.V., CRH Plc, Holcim Ltd. and Lafarge Group. The Hanson board announced in mid-May its blessing of a $16 billion takeover offer from Heidelberg. The transaction was proposed as two other big-ticket takeovers progress: Cemex-Rinker Group ($15.3 billion) and Vulcan Materials-Florida Rock Industries ($4.6 billion).

HeidelbergCement and Hanson are a perfect fit, sharing the same enthusiasm for operational efficiency and focus on adding long-term value, notes HeidelbergCement CEO Dr. Bernd Scheifele. We believe the combined businesses will be better able to respond to the evolving needs of customers in the competitive and rapidly consolidating global building products industry. He added that Hanson’s London-based CEO Alan Murray has been asked to join the Heidelberg executive team, possibly charged with overseeing North American and Australian operations Û the latter country representing new turf for Heidelberg.

A Hanson takeover would afford Heidelberg an even greater presence in North America (note map, page 6), where Lehigh and sister U.S. and Canadian operations accounted for 27 percent of the $12.5 billion Heidelberg reported in worldwide 2006 sales. Assuming regulatory approval in Europe and North America, the company anticipates a third-quarter closing. The deal would cap a decade-long ownership transition involving United Kingdom-based heavy building materials multinationals and four of the industry’s top-five global operators. In late 1997, Paris-based Lafarge acquired Redland Plc. That deal included concrete and aggregate businesses positioning the Lafarge North America subsidiary to grow an integrated cement and materials platform in the U.S. akin to Lafarge Canada.

In 2001, Lafarge took over another U.K mainstay, Blue Circle Industries, whose U.S. cement, concrete and aggregate businesses boosted Lafarge North America, especially into the Southeast. In 2005, Cemex acquired RMC Group Plc, whose deep U.S. portfolio placed the suitor in new markets across the Sun Belt states. A few months later, Holcim acquired U.K.- and U.S.-entrenched Aggregate Industries, bringing much integration potential for Holcim (US) Inc.

Deal-making since 2005 has left few big U.S. targets, perhaps none more attractive than Martin Marietta Materials. Thanks to the watermarks set for Rinker, Florida Rock and Hanson, recent trading has valued the aggregate giant in dollar terms around a lucky 7 ÷ followed by nine zeros.

(2006 revenues in US$ billions)
Cemex S.A.B. de C.V. 18.25 4.17
(Rinker Group)* 5.1 4.03
CRH Plc 25.4 **8.2
HeidelbergCement AG 12.5 3.32
(Hanson Plc)* 8.13 4.0
Holcim Ltd. 19.1 4.54
Lafarge Group 23.0 6.95
* Takeover targets
** Includes estimated $3 billion-$4 billion from Allied, Glass, MMI sales
Sources: 2006 Annual Reports