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Vulcan to pay $4.6bn for Florida Rock

Vulcan Materials agreed late Monday to pay $4.6bn in cash and stock for Florida Rock, a smaller rival producer of asphalt and cement, in a deal that may herald consolidation among US construction material companies.
/ Source: Financial Times

Vulcan Materials agreed late Monday to pay $4.6bn in cash and stock for Florida Rock, a smaller rival producer of asphalt and cement, in a deal that may herald consolidation among US construction material companies.

The acquisition will allow Vulcan, already the biggest US company in its industry, to expand in Florida, which is seen as particularly attractive because of demographic trends such as strong population growth and job growth.

However, the deal comes at a sensitive time for the construction market in Florida, where the residential housing market has suffered a painful boom and bust in some areas.

Don James, chief executive of Alabama-based Vulcan, said in an interview with the Financial Times: "There has been a correction in housing in many markets but we have to have a long-term focus and while we can't really predict how long the downturn will last, the factor that's important is [that] the demand for aggregates is going to continue to grow in Florida."

Vulcan's main businesses are involved in producing materials for construction in the public sector and in the non-residential sector, such as office buildings, which means it has been less affected by the swings in valuation in residential housing.

Mr James predicted that more deals would follow Vulcan's acquisition of Florida Rock, because of the industry's fragmented structure. The combined group would be the biggest in the US, but with a market share of only 9 per cent. "We think there will be continued opportunity for consolidation," he said.

Vulcan is offering to pay $68.03 a share, or 11.2 times the most recently reported ebitda, to Florida Rock shareholders. This represents a 45 per cent premium over the target's closing price on Friday.

About 70 per cent of the consideration will be in cash, with the remaining 30 per cent in Vulcan shares. Vulcan expects to generate at least $50m in annual pre-tax cost-savings from the deal.

Goldman Sachs and Wachtell Lipton advised Vulcan, while Lazard and Weil Gotshal advised Florida Rock.