Raleigh-based Martin Marietta to acquire Texas Industries in $2.7 billion deal

dbracken@newsobserver.comJanuary 28, 2014 

  • Deal at a glance

    Combined company headquarters: Raleigh

    CEO: Ward Nye

    Employees: 6,988 (4,948 for Martin Marietta, 2,040 for Texas Industries)

    Combined net sales: Nearly 2.5 billion

    Business: Provider of rock, gravel, sand and crushed stone and seller of concrete

    Operations: More than 400 quarries, distribution yards and plants in 36 states, Canada, the Bahamas and the Caribbean

— Martin Marietta Materials is acquiring Texas Industries for $2.7 billion in a deal that will make the Raleigh company the largest provider of rock, gravel and other construction materials in the country.

The combined company will have nearly 7,000 employees and be based in Raleigh, where it has about 280 employees. The acquisition represents the largest ever acquisition for Martin Marietta, a company that has been gradually extending its network of quarries and mining operations over the past two decades.

It’s also a testament to Martin Marietta’s ability to successfully navigate through a recession that caused demand for construction materials to plummet by more than 40 percent.

“We’ve come through a challenging period of time, I would submit to you, much, much better than our peers,” Ward Nye, Martin Marietta’s CEO, said in an interview Tuesday. “And what it’s done is it’s put us in the position from a balance sheet perspective and a strategic perspective that we can do this.”

Investors liked the deal, pushing Martin Marietta’s stock up 4 percent to close at $106.75, up $3.97.

With the addition of Texas Industries, Martin Marietta will operate a network of more than 400 quarries, distribution yards and plants in 36 states, Canada, the Bahamas and the Caribbean. The company is also getting into the cement business, as Texas Industries operates several cement plants in California and Texas, where it is the largest producer.

The acquisition gives Martin Marietta increased exposure to key markets in Texas and California, where construction activity is expected to be strong as states continue to add population.

“It gives them an excellent position in attractive growth markets,” said Arnold Ursaner, president of CJS Securities, in White Plains, N.Y.

The merged company will have roughly 13.5 million tons of construction materials – known as aggregates – in reserve. The two companies shipped 143 million tons of materials last year, with Martin Marietta accounting for 128 million of that total.

Ursaner said acquiring additional reserves is critical given how difficult it has become to develop new aggregate properties or get local approval to expand existing sites in the United States.

“There are such enormous barriers to entry that it is much easier to buy your way in than to build your way in,” he said.

$70 million in savings

The aggregates industry has been rapidly consolidating in recent decades, going from a patchwork of regional players to a handful of large national players. Martin Marietta largely avoided overpaying for assets during the housing bubble, choosing instead to invest money in technology to improve its profit margins.

“We like to buy at what we feel like is sort of a bottom of the market and then ride it up,” Nye said. “As the market’s going up, we tend to invest in ourselves.”

In late 2011, Martin Marietta made a hostile takeover bid for Birmingham, Ala.-based Vulcan Materials, a larger rival that had taken on considerable debt to make an acquisition in 2007. But Martin Marietta was forced to halt the effort after a Delaware judge ruled that the company violated a 2010 confidentiality agreement with Vulcan in making its bid.

The Texas Industries deal, which requires regulatory and shareholder approval and is expected to be completed in the second quarter, should face less opposition. Texas Industries’ two largest shareholders, who represent 51 percent of the outstanding shares, have agreed to vote in favor of the transaction.

Martin Marietta is paying $71.95 per share for Texas Industries, a 13 percent premium over the company’s closing price on Dec. 12 – the day before speculation about the deal first surfaced. The companies expect the all-stock deal to generate $70 million in savings by 2017.

Strong earnings quarter

Stanley Elliott, an analyst with Stifel, Nicolaus & Co., said both the price and timing of the deal make it attractive for Martin Marietta. He said there are very few large operators available for purchase anymore, and the overall industry appears to be rebounding.

Martin Marietta reported strong fourth-quarter earnings Tuesday that beat the consensus of Wall Street analysts who cover the company. Net sales increased 7 percent to $491.4 million, and the company reported earnings per diluted share of 77 cents, compared with 46 cents per share in the fourth quarter of 2012.

“The residential piece is improving, the nonresidential piece is improving, the funding environment is stable for the first time in awhile,” said Elliott, who upgraded Martin Marietta to a buy and now has a price target of $125 for the stock. “The state and local governments are putting more resources towards infrastructure and road development. It seems like the conditions are set for these guys to start improving their volumes.”

Ursaner, the CJS Securities analyst, agrees.

“The industry has bottomed out,” he said. “The question is the pace of growth, not whether there will be growth.”

Bracken: 919-829-4548; Twitter: @brackendavid

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