CRH shares jump as Europe’s largest activist investor reveals stake

Cevian reveals stake as AllianceBernstein analysts say materials giant has ‘lost its way’

CRH CEO Albert Manifold. ‘CRH has been substantially restructured by the CEO over the past five years,’ says Davy.  Photograph: Nick Bradshaw

CRH CEO Albert Manifold. ‘CRH has been substantially restructured by the CEO over the past five years,’ says Davy. Photograph: Nick Bradshaw

 

CRH shares jumped on Wednesday after Europe’s biggest activist investor said it has built up a stake in the building materials giant, prompting speculation that the finance company will press management to pursue strategies to boost shareholder value.

Cevian Capital, based in Stockholm and which has about €13 billion of assets under management, is “convinced that CRH’s assets could become significantly more valuable,” Christer Gardell, managing partner with the firm, said in an interview with Reuters, in which he revealed the stake.

Stake

CRH shares gained as much as 5 per cent in early trading on Wednesday, to €27.49, their highest level since last October and valuing the company, led by chief executive Albert Manifold, at €22.3 billion. They closed up 2.3 per cent. While Cevian’s stake is currently below the 3 per cent stake that would have to be disclosed on the stock market, observers expect it to add to its position.

Founded by Mr Gardell and Lars Forberg in 2002, Cevian typically holds between 10 and 12 investments in its fund and usually seeks representation on the board of a company in which it invests – to exert influence from within. Current holdings include a 15.1 per cent stake in German steel and elevators group ThyssenKrupp, 10.1 per cent interest in Swedish telecoms equipment maker Ericsson, and 2.3 per cent of Scandinavian lender Nordea.

Cevian, in whose funds US billionaire “corporate raider” Carl Icahn has invested, has committed up to €2 billion in individual companies. That equates to more than 10 per cent of CRH’s value before news of the new investor emerged.

While Icahn and other US activist hedge funds, such as Paul Singer’s Elliott Management and Dan Loeb’s Third Point, often use public pressure to prompt investee companies into actions to unlock short-term value, Cevian tends to take a longer view.

The CRH investment is believed to have been made late last year, after the stock fell as much as 33 per cent from its June highs, weighed down by investor concerns over the outlook for its main market in the US, the fledgling recovery in the European market, as well as rising energy costs.

Wednesday’s gains has brought CRH’s rally so far this year to 16 per cent, compared to 8.9 per cent for the Iseq index and almost 8.9 per cent for the MSCI All World Index.

Prospects

However, analysts are at odds over the company’s prospects. In a report published this week, AllianceBernstein analysts said CRH “has lost its way”, with its organic growth having stalled in recent years as it focused on large merger and acquisition (M&A) deals.

“We believe management is stuck between a rock and a hard place,” they said. “Does management continue making large acquisitions to generate growth, but with questionable returns, or do they cut M&A and focus instead on returning cash to shareholders, but which exposes CRH’s dependence on low growth cyclical markets in North America and Europe?”

However, Davy analysts Barry Dixon and Robert Gardiner said that the Cevian announcement “confirms the fundamental attractiveness of CRH”.

“CRH has been substantially restructured by the CEO over the past five years, a process that is continuing,” they said. “This is reflected by in its superior performance in the things that matter – returns and cash generation.”

“We believe that there is limited insight that a financial investor can bring that CRH’s management is not already doing,” they added.