CRH's £213 million acquisition of the Tilcon building materials group in the north east USA would give CRH an "unassailable" position in a region with a higher economic output than Britain, and would be immediately earnings enhancing, CRH chief executive Mr Don Godson has said.
The confirmation of CRH's biggest ever acquisition came with yesterday's half year results. But Mr Godson said the net cost of the acquisition will be £157 million. CRH plans to sell one Tilcon quarry and asphalt plant to comply with anti trust regulations and also plans to dispose of two non-core businesses for £31 million.
Last year, Tilcon - which CRH has purchased from British conglomerate BTR - had operating profits of £20.4 million on sales of £227.8 million. Profit before tax for the year totalled £17.2 million.
Adjusted for the planned disposals, operating profits were £18.8 million on sales of £206 million. There would be no goodwill to be written off in connection with the acquisition.
"At an effective net cost to us of $254 million, we have exceptional value, superb quarries and a most amazing fit with our present operations with pretty unique synergies," Mr Godson said.
We had a situation where we had quite a motivated seller working to a different agenda, and we were a dispassionate and patient negotiator," Mr Godson said. "We got excellent value."
CRH is funding the acquisition through existing lines of credit, but took the opportunity yesterday to place almost 18 million shares at 575p each to raise £101 million.
CRH's comfortable balance sheet meant that the group has no need to raise fresh equity, but Mr Godson said: "The placing gives us the firepower to avail of other opportunities.
"It was about the right amount of tweaking to show we do value equity as blood," said Mr Godson, who added the placing "took a bit of doubt out of the marketplace about an overhang".
The market responded enthusiastically to the acquisition, which is seen as a far better deal for CRH than for the vendor, BTR. In Dublin, CRH shares jumped 13 1/2p to 615 1/2p while in London over a million shares traded as CRH shares jumped 14p to 640p.
"The market liked the deal and also knows that the placing is the last time for a long time to come that CRH will be issuing equity," commented one fund manager.
The chief executive of CRH's US operations, Mr Liam O'Mahony, said: "Tilcon has a history of good profitability, proven management, first class assets and close to a billion tons of reserves." He said that CRH expected to realise substantial synergies but declined to put a figure on the savings that CRH expected to generate when Tilcon was fully integrated into CRH's existing business in the north east USA.
Mr Godson said, however, that the strategy was to get Tilcon's operating margin up from the current 9 per cent to between 10 and 12 per cent. Over the last nine years, margins in the industry in north east USA have averaged 11.8 per cent.
"There will be some people savings over time, especially in the administration area," said Mr O'Mahony. One area where some of the acquisition cost might be recouped is in the sale of Tilcon's fleet of five aircraft and helicopters.
Tilcon has its headquarters in Hartford, Connecticut and had volume sales last year of 16 million tons of aggregates, six million tonnes of asphalt and 400,000 cubic yards of ready mixed concrete.
Following the acquisition, the combined CRH Tilcon operations will be the largest construction materials group in the northeast and mountain states of the USA, with over 170 locations in 13 states.
