Tuesday, February 3, 2015

EUROPE: CRH shares jump after €6.5bn asset deal

Shares in CRH jumped 6 per cent on Monday as investors applauded the Irish cement company’s decision to spend €6.5bn on assets of rivals Holcim and Lafarge, despite saying it would partially fund the deal through selling new shares.

The deal, agreed early on Sunday morning, will make it the third largest building materials business in the world by market value, having beat out a consortium led by Blackstone. It is by far the biggest deal CRH has agreed.

Ireland’s largest construction company, with a market capitalisation of €15.8bn, will sell 74m of stock, equal to just under 10 per cent of its share capital, and will also fund the deal with new debt and €2bn of cash from its balance sheet.

Although CRH has expanded through acquisitions for the past several decades, these have tended to be smaller transactions. It has spent $24bn on roughly 650 acquisitions since 2000.

“Put simply, we saw this as the right deal, at the right time and at the right price. It was too good an opportunity to turn down,” said CRH chief executive Albert Manifold on Monday.

“This is not a shift in strategy for us — normally we do around €2bn worth of acquisitions per year. This is just compressing 2.5 years of those transactions into a single deal.”

Mr Manifold also responded to speculation about whether the group would consider partners after the deal closes, including with buyout group KKR.

“Not all of these assets are going to remain long term in our group, that’s for sure. Some of these assets, we will be required to take partners on,” he said.

“One of those areas is the United Kingdom and we will look at whether we feel it’s appropriate to allocate all of the capital at this moment of time or to take on some partners. We have had a number of discussions with people. We are in discussions with KKR about investing in the UK.”

The assets being acquired include all of Lafarge’s UK operations, which will leave CRH with a number one market position in the British market for cement, aggregates, ready-mix concrete, asphalt and construction.

Outside the Irish and UK markets, the deal will also allow CRH to significantly expand its business globally. It will comprise of assets producing cement, aggregates, ready-mixed concrete and asphalt in North America, western Europe, Central and eastern Europe and the emerging markets.

Analysts at Cantor Fitzgerald in Dublin echoed the broader investor enthusiasm seen in early market trading on Monday, saying: “While not the most straightforward of deals, we believe significant demand exists for the materials assets globally — shown by the existence of multiple serious buyers for Lafarge Holcim assets.”

“CRH has a history of acquisition and successfully integrating businesses into its operations,” they added.

Holcim and Lafarge are selling the assets to win regulatory approval to merge and become the world’s biggest cement maker. CRH said it expected the businesses it is buying to earn revenue of €5.1bn and adjusted earnings of €752m in 2014.

In a conference call on Monday, the chief executives of the merger partners said the CRH deal price included the assumption by the Irish company of about €1.3bn of debt. The sale ensured their merger was on track for completion in the first half of 2015 with the vast majority of the assets they needed to sell now placed with buyers, they said.

Lafarge CEO Bruno Lafont said the CRH offer “was the best, both on the contractual side and on price”.

The deal requires shareholder approval. The “newco” employs 15,000 people in 11 countries, and CRH expects net synergies of €90m by the third year.

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