Texas Industries Said in Talks on Sale to Martin Marietta

Martin Marietta Materials Inc., the U.S.’s second-largest producer of sand, gravel and crushed rock used in construction, is in advanced talks to acquire building-materials company Texas Industries Inc., people with knowledge of the matter said.

An agreement could be announced as early as next week, said the people, who asked not to be named because the information is private. Dallas-based Texas Industries, which has a market value of more than $2 billion, is working with Citigroup Inc. to find a buyer, people said last month.

Talks restarted late this week after earlier hitting a snag, two people said. There’s still a chance no agreement will be reached, the people said. The deal could be an all-stock transaction, one person said.

Texas Industries’ strength in California and its home state would give Martin Marietta an entry into the cement market amid a U.S. construction rebound. The crushed stone, gravel and sand that Martin Marietta already produces, known as aggregates, are mixed with cement to produce concrete. In 2013, builders began work on 923,400 homes, an increase of 18 percent from the prior year and the most since 2007.

Texas Industries rose 9.3 percent yesterday to $75.06, its highest close since May 2008. At that price the company has a market value of $2.15 billion. Martin Marietta fell 4.4 percent to $104.32.

Vertical Integration

Lesley Vines, Texas Industries’ corporate controller and treasurer, declined to comment in an e-mail, citing company policy not to comment on rumors. Officials at Raleigh, North Carolina-based Martin Marietta didn’t reply to e-mail messages and telephone messages seeking comment

Martin Marietta, which shipped 128 million tons (116 million metric tons) of aggregates in 2012, began expanding outside of its core business in 2011, including an asset swap to gain concrete and asphalt operations near Denver. Chief Executive Officer Ward Nye said in August the increase in these “vertically integrated businesses” is a way to tap growing markets.

Martin Marietta doesn’t have aggregates or ready-mix concrete production in California, where Texas Industries owns a cement plant near Los Angeles. That would bring Martin Marietta into unfamiliar territory, said Kathryn Thompson, an analyst who founded Thompson Research Group in Nashville, Tennessee.

“Martin has no meaningful exposure to California, so it would be unusual to enter into that market particularly on the non-aggregate side,” Thompson said in a telephone interview.

Housing Slump

The sale could mark an exit for Southeastern Asset Management Inc. and NNS Holding, which together own more than 51 percent of Texas Industries, according data compiled by Bloomberg. Southeastern and NNS, an investment vehicle for Egyptian billionaire Nassef Sawiris, had been looking to sell for some time, a person said last month.

Building-materials companies struggled through a housing and commercial-construction slump that shrank U.S. cement demand by 44 percent in the five years ended in 2010, according to data compiled by Bloomberg. Consumption in 2010 of 71 million tons was the lowest since 1980, and that figure rose only to 79 million tons in 2012, the data show.

Annual production capacity at Texas Industries, also referred to as TXI, is 6.8 million tons. The company, which operates two cement plants in Texas and one in California, has posted losses from continuing operations in four of the past five years.

Price Increases

The company said Jan. 8 it has announced cement price increases totaling 8 percent in Texas and 8.5 percent in California by April, citing improved construction. Over the next five years, annual cement demand will rise an average of 6 percent in Texas and 9 percent in California, Chief Operating Officer Jamie Rogers said on a conference call with analysts, citing data from the Portland Cement Association.

To meet higher demand in Texas, the company restarted an older kiln at a plant in the state that will add 900,000 tons of capacity.

Martin Marietta attempted a hostile bid for Birmingham, Alabama-based Vulcan Materials Co. in December 2011. That effort failed. Separately, Vulcan this week announced it would sell cement and concrete assets in Florida for $720 million to Cementos Argos SA.

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