Gun-Slinging Investor Draws Weak Case For Messing With Texas Industries

Beyond its history as a post-war block, pipe and ready mixed producer that integrated in reverse, Texas Industries, Inc. is the last of a breed: An American-owned,


Beyond its history as a post-war block, pipe and ready mixed producer that integrated in reverse, Texas Industries, Inc. is the last of a breed: An American-owned, public cement company that remains under the direction of founding-family members. Sweeping cement and concrete industry changes in North America and across the globe, coupled with a drop in TXI’s main markets of Texas and California, have nurtured forces challenging company tradition.

For the third time in four years, TXI is approaching its annual meeting Û October 22 in Dallas Û with a new major shareholder poised to challenge the board on overall direction. Between November 2008 and July 2009, Burbank, Calif.-based Shamrock Activist Value Fund (SAVF) has acquired shares representing a 10.2 percent TXI stake. Securities and Exchange Commission filings suggest the bulk of shares were purchased in the $29-$32 range, climbing in the market rebound to $40-45. Still, SAVF officials have waged a campaign to seat an opposition slate of three directors at the meeting while changing the director election cycle. They have also challenged TXI’s timing of $750 million in capital investments since 2005, including a $427 million Oro Grande cement mill overhaul in southern California, completed earlier this year.

It must be easy for an outsider to swoop into an investment opportunity like the one TXI has presented this past year, then pretend to question the company’s continuation of a capital investment campaign in a down market. But does anyone think a firm like SAVF, with hundreds of millions at its disposal, is unaware of the long-term nature of investing in a capital-intensive business?

TXI’s huge outlays are aimed at plant modernization and a powder capacity increase from 5 million to nearly 8 million tons/year Û hardly a questionable strategy for a domestic operator bent on staying relevant in an age of global cement commerce. In a perfect world, TXI could neatly time expansion with escalating powder demand. In the real world, inconvenient variables like permitting (California anyone?) or plant construction material spikes ($teel) prevail.

SAVF cites TXI’s lagging recent financial performance against New York Stock Exchange-traded peers Eagle Materials, Martin Marietta Materials and Vulcan Materials. In investor circles, the company belongs in the same sector; however, Eagle, Martin Marietta and Vulcan have sufficiently different portfolios Û enough to make recent financial performance an apples-and-oranges comparison. One benchmark for TXI shareholders to consider is where the company and its peers are trading today versus 2007 peaks tied to takeover speculation amid the pricey Cemex-Rinker, Heidelberg-Hanson, and Vulcan-Florida Rock mergers [table below].

Wall Street did not discriminate against TXI at market peak, even though the company was on the brink of a costly capital program certain to weigh on financial performance for at least the remainder of the decade. It’s doubtful these figures have escaped SAVF officials, who will nonetheless attend the annual meeting backed by two other major shareholders and a voting block of at least 34.5 percent favoring the opposition director slate and bylaws changes.

Responding to the SAVF campaign through a letter to shareholders, TXI Chairman Robert Rogers and CEO Mel Brekhus encouraged support of their incumbent directors, challenged the methods and accuracy of SAVF filings and statements, and cautioned: We can only conclude Shamrock is agitating for change of control of the company, which we believe will not serve the purpose of creating additional value for all shareholders÷ A fitting position for seasoned industry veterans addressing critics armed with the thinnest of arguments.

STOCK 2007 2009
TXI $87 $45
Eagle $51 $27
Martin Marietta $168 $96
Vulcan $120 $55