Summit Materials Counters CRH Bid’s for Ash GroveBy and
Denver company enters bidding war for U.S. cement supplier
Ash Grove said ‘third party’ outbid CRH’s $3.5 billion offer
Summit Materials Inc., the Denver-based construction materials company, made a rival bid to buy U.S. supplier Ash Grove Cement Co., according to people familiar with the matter, putting it in competition with the $3.5 billion takeover offer from Irish producer CRH Plc.
Summit Materials made a last-minute proposal to combine with Ash Grove, the people said, asking not to be identified because talks are private. Ash Grove, which is based in Overland Park, Kansas, said the offer from a third party, which it didn’t identify in a statement late Thursday, was valued at $3.7 billion to $3.8 billion.
Ash Grove’s board said the offer could result in a superior proposal and that it would engage in talks with the third party. CRH reiterated in its own statement Friday that it had agreed to acquire Ash Grove for $3.5 billion and said the period for obtaining shareholder approval has been extended. The Irish company plans to monitor the situation for now, though it has the capacity to raise its offer if it decides to do so, the people said.
CRH fell 1.8 percent to close at 30.92 euros in Dublin, giving the company a market value of 25.9 billion euros ($30.4 billion). Summit dropped 3.1 percent to $31.65 at 3:14 p.m. in New York.
The move by Summit Materials founder and Chief Executive Officer Tom Hill, who previously worked at CRH, is ambitious because the company, valued at $3.6 billion, would be trying to buy a company that is almost the same size. This could raise questions about how the U.S. firm can finance such a bid and whether it would be a share deal, compared to an all-cash offer from Dublin-based CRH.
Summit’s net debt is currently 4.4 times earnings before interest, taxes, depreciation and amortization as against 2.1 times for CRH, according to data compiled by Bloomberg.
“The sheer size of the transaction would require some combination of new debt and equity issuances,” Stanley Elliott, an analyst at Stifel Nicolaus & Co., wrote in a note to clients. “Fortunately, the bond market is open and receptive to building-products companies. Even with an additional $3 billion of debt, we anticipate Summit could get debt financing in the mid-5 percent range.”
CRH agreed last month to buy Ash Grove, which is majority owned by the Sunderland family and has called the Irish producer its largest customer. The deal was the latest sign of global consolidation among building-materials suppliers, coming the same week as Germany’s HeidelbergCement AG agreed to buy Italian assets from Cementir Holding SpA. The counter proposal from Summit throws a spanner in the works for CRH, a serial buyer and seller of assets which announced in August the disposal of a division for $2.63 billion.
“The outcome of the bidding process will likely come down to a question of whether the family-controlled Ash Grove wishes to stay in the industry merged with Summit or alternatively take the cash offer from CRH and exit,” said David Holohan, chief investment officer at Dublin-based securities firm Merrion Capital. “Given CEO Tom Hill’s intricate knowledge of the sector and given his history of running CRH’s U.S. business, it is unsurprising to see the company engage in the bidding process for Ash Grove.”
CRH’s plan “has been disrupted by the emergence of an 11th hour bidder,” Davy, the Dublin-based securities firm, said in a note. “That development is perhaps not surprising given Ash Grove’s attractive position in the U.S. cement market.”
Ash Grove operates eight cement plants across eight U.S. states. Last year it reported profit before tax of $215 million and gross assets of $2.5 billion.
Representatives of CRH, Summit Materials and Ash Grove declined to comment.
CRH would receive a termination fee of $131 million if Ash Grove breaks the agreement, according to the merger documents.
— With assistance by Ruth David, Arie Shapira, and Thomas Black