Cemex Assets Fit Oldcastle Like A Glove

The ink is dry on the two largest takeovers ever in the global heavy building materials business. The Cemex S.A.B. de C.V. + Rinker Group ($15.3 billion)


The ink is dry on the two largest takeovers ever in the global heavy building materials business. The Cemex S.A.B. de C.V. + Rinker Group ($15.3 billion) and HeidelbergCement AG + Hanson Plc ($16 billion) deals were consummated in summer 2007 and had unmistakable parallels: cement-centric suitors with modest aggregate and strong ready mixed concrete positions in the U.S. and targets with top-five aggregate and concrete pipe and precast positions. A few months into the Rinker integration, Cemex revealed that a national pipe and precast business is not part of its U.S. core, nor are certain materials operations within and beyond the Sun Belt.

The most natural, credit-worthy suitor for those properties could be the only major operator to enter the Florida and Arizona ready mixed markets by way of New York, Pennsylvania, Utah, Ohio and Iowa. CRH Plc confirmed in mid-September discussions potentially leading to the purchase of $3.5 billion to $4.5 billion in U.S. ready mixed, manufactured concrete, aggregate and cement production assets from Cemex. The Dublin-based parent company of the Oldcastle Architectural, Precast and Materials entities to which the Cemex properties are ideally matched, CRH has a history of steering away from bidding wars in favor of negotiated deals.

Assets pegged for divestiture include the entire Rinker/Hydro Conduit pipe and precast network; 39 ready mixed, block and aggregate plants in Florida and Arizona the U.S. Department of Justice/Antitrust Division pinpointed in April 2007 as part of its Cemex USA-Rinker Materials regulatory review; Rinker Materials’ Pacific Northwest ready mixed and materials businesses; Kentucky aggregates operations; and, Fairborn, Ohio, and Wampum, Pa., cement mills.

Virtually all properties noted in a joint Cemex-CRH announcement are strategic to existing Oldcastle businesses or in markets they have recently entered. The Rinker/Hydro Conduit pipe and precast franchise Û the number-two player in drainage products behind Hanson Pipe & Products Û would bring complementary business to Oldcastle Precast. A key national player in modular building systems, Oldcastle Precast also has strong regional positions in architectural and non-architectural concrete products, the latter including gravity pipe and drainage structures.

The Kentucky aggregate and Pennsylvania and Ohio cement properties noted as part of the CRH discussions date to Southdown Inc., which Cemex acquired in 2000. The Kentucky business would appear to align with APAC aggregate and asphalt properties Oldcastle Materials added in August 2006. The cement plants likewise serve Rust Belt and Great Lakes regions encompassing ready mixed, precast and block & paver plants under respective Oldcastle banners. The sale of those properties would continue an exit from Southdown markets above Sun Belt states that Cemex began with the 2005 sale of Illinois and Michigan cement mills and terminals to Votorantim, a Brazilian operator with Ontario and Florida footholds. If a deal proceeds, Cemex’s non-Sun Belt assets would be limited to cement mills in Tennessee, Kentucky and Colorado and related terminals.

Acquisition of the Fairborn and Wampum powder plants would follow CRH’s recent chartering of a cement platform in North America, American Cement Co. LLC, under development in Sumterville, Fla. That mill complements 11 Oldcastle Architectural and Oldcastle Precast properties from the Florida panhandle to Miami. The Cemex asset deal would bring block plants and ready mixed plants in Florida, presumably operating under the Architectural and Materials groups.

Considering the properties and market positions at stake, it’s hard to imagine Cemex finding a better leveraged and more sincere buyer for its designated divestments. A prospective transaction might serve as a textbook case for exiting the U.S. concrete pipe and precast business that another global operator would be challenged to match.
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