Texas Industries Inc. (TXI:US) has agreed to a sale to Martin Marietta Materials Inc. (MLM:US), the U.S.’s second-largest producer of sand, gravel and crushed rock used in construction, a person with knowledge of the matter said.
A merger could be announced imminently, said the person, who asked not to be named because the information is private. The deal is likely to be an all-stock transaction, one person familiar with the matter said last week.
Texas Industries, which is based in Dallas, has a market value of about $2 billion and Raleigh, North Carolina-based Martin Marietta is currently valued at about $4.8 billion. Officials at both companies didn’t reply to requests for comment by telephone and e-mail.
Texas Industries is the No. 2 cement maker in California and the biggest in its home state, giving 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 18 percent jump from the prior year and the most since 2007.
The acquisition “would meaningfully change” Martin Marietta’s business mix because the company has no cement assets and only about 7 percent of sales come from concrete, Adam Rudiger, an analyst with Wells Fargo, wrote in a note yesterday. Rudiger has a market perform on the aggregates producer and doesn’t cover Texas Industries.
“Martin Marietta’s rationale for such a transaction would be to gain exposure to faster growing states,” Rudiger said. “Additionally, we note Martin Marietta has shown a desire to grow through acquisition.” Martin Marietta attempted a hostile bid for Birmingham, Alabama-based Vulcan Materials Co. in December 2011 that didn’t go through.
Shares of Texas Industries jumped as much as 6.7 percent to $76.35 in late trading yesterday, after closing at $71.54 in New York. Martin Marietta dropped 1.5 percent in regular trading to $102.78.
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.
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.
Texas Industries 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, with 900,000 tons of capacity.
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