A strategic earnings-enhancing acquisition in the US has failed to boost CRH shares. In weak markets the company's shares fell 53 cents to close at €17.40 (£13.70) yesterday.
The building materials group has expanded its operations in the US again with the $362 million (€363 million) acquisition of the Shelly Company, an Ohio-based aggregates group.
The acquisition, which will be immediately earnings enhancing, will provide a substantial platform for further expansion by CRH into the Ohio and West Virginia markets.
With interest covered six times by operating profits and a strong cash flow, CRH is well placed for further acquisitions, with some market speculation that the group may bid for Tarmac US which is expected to make $550 to $600 million. ABN-Amro analyst Mr John Clarke said he expected the Shelly deal to add about 4 cents to full-year CRH earnings.
Acquired through its US operation, Oldcastle Materials Group, the latest acquisition follows Oldcastle's $422 million acquisition last July of Thompson-McCully in neighbouring Michigan. CRH said the deals consolidated Oldcastle's position in the fragmented US mid-west materials market and put the group in a better position to win a bigger slice of local US government highway building contracts. Federal spending on highway building in these states is expected to increase by at least 5 per cent per annum over the next three years, according to CRH finance director Mr Harry Sheridan. Oldcastle chief executive Mr Tom Hill described Shelly as "the leading vertically integrated materials company in the growing southern Ohio and West Virginia markets". The deal, which is being funded through US debt, is at an effective price of $350.6 million when Shelly cash balances at acquisition are taken into account.
Shelly is a large, profitable, integrated aggregates, asphalt and paving contractor with headquarters in Thornville, Ohio. Its operations include three quarries, 10 active sand and gravel pits, 59 fixed asphalt plants and five portable asphalt plants. It supplies its own bitumen needs and has aggregate reserves of more than 200 million tons. The family-owned company recorded sales of $323 million in the year to end March 1999 and adjusted trading profits after depreciation of $46 million. Revenue and profits in the current year are expected to benefit from rising Federal spending on highways. The company has 600 permanent employees and takes on some 600 workers on a seasonal basis each year. Shelly chairman Mr Dick Shelly (62) is staying with the company for two to three years while its president, Mr Mark Shelly, will run the operation as a standalone unit within Oldcastle.
CRH, which has a very strong market position in the north-east US and is strong in mountain and western states, made its first move into the Great Lakes areas with the Thompson-McCully acquisition. The group, which has 16,000 employees in the US, is now expected to target further acquisitions in this region.
The Shelly acquisition gives CRH a 39 per cent share of the market in Southern Ohio, but with just 5 per cent of the total Ohio market, it is expected to build market share actively there.
