Reflecting on the CRH-Ash Grove deal and Summit’s late run

Ash Grove Cement shareholders were scheduled to meet Nov. 1 to make a decision on their merger agreement with CRH, the parent company of Oldcastle Materials.

But a majority of Ash Grove shareholders approved CRH’s $3.5 billion takeover offer late Friday. That put an end to a late run at Ash Grove by Summit Materials, which reportedly made a bid of up to $3.8 billion for the company yet ultimately did not submit a definitive proposal by a Friday deadline.

George Reddin, the managing director at FMI Capital Advisors who contributes to Pit & Quarry quarterly, outlined previously why Oldcastle is a good geographical fit for Ash Grove. Ash Grove operates eight cement plants across eight U.S. states, along with 52 ready-mixed concrete plants, 25 sand and gravel plants, 20 limestone quarries and nine packaged products plants.

Many of Ash Grove’s assets overlap nicely with Oldcastle’s across the central United States and the Pacific Northwest, Reddin says. In addition, Oldcastle is Ash Grove’s largest customer.

George Reddin

Had Summit prevailed with a takeover of Ash Grove, it, too, would have been a geographical fit with assets in Kansas, Reddin says. Ash Grove’s cement assets, coupled with Summit’s Mississippi River network, would have established Summit as a major cement player in the Midwest, he adds.

Upon accepting CRH’s offer Friday, Ash Grove made it known in a statement that Summit did not submit a definitive takeover proposal. But even some of the talk in industry circles leading up to Ash Grove’s Friday announcement was that Summit’s offer, despite having a higher price tag, might not be the more attractive of the two offers.

“Summit’s deal appeared to be more complex than CRH’s cash deal,” Reddin says. “How do you buy something of equal size when you don’t have the cash or ability to borrow in the traditional debt markets? Equity infusion, secondary offering or non-traditional sources of debt would likely be involved.”

Had Summit prevailed, Ash Grove would not have been the first company to be acquired in the last few weeks via a late bid made public. U.S. Concrete stepped in last month to acquire Polaris Materials after Vulcan Materials initially established an arrangement for the Canadian-based company.

Still, the nature of the Polaris deal was somewhat different than the dynamics at play related to Ash Grove.

“On the Polaris deal, I think that was a little bit more open in the marketplace with a number of players,” he says. “Polaris was involved with Cemex early on. Then Vulcan came in. This was an ideal fit with U.S. Concrete, especially given their interest in further expanding their aggregates position. With the strength of their stock price and some other things going, they were able to make an aggressive run at it.”