Consolidation is the hot trend in the cement industry. The acquisition of Rinker
HeidelbergCement, based in Germany, will pay approximately 8 billion GBP ($15.9 billion) for Hanson, and the boards of directors at both companies have approved the deal. From a valuation perspective, HeidelbergCement is paying a little bit more than 12 times EBITDA (earnings before interest, taxes, depreciation, and amortization). This is slightly higher than the 10.5 times EBITDA that Cemex is set to pay for Rinker.
Hanson, like Rinker, is a large provider of aggregates (crushed rock, sand, gravel, etc.), but unlike Rinker, it is also a provider of building materials such as tiles and bricks. The combined Hanson and HeidelbergCement will be the second-largest company in the industry on a market-cap basis. Market caps are always moving, but taking a quick look at some of the larger competitors, it appears that Lafarge
Like the Cemex deal, the Hanson deal provides geographic diversification for HeidelbergCement. But in the long term, the consolidation in the industry is about scale and potential efficiency gains, and ultimately, greater consolidation should lead to more pricing power for the remaining parties. That's a plus in the long term, even if the short-term outlook for cement growth in developed economies isn't very strong.
Related Foolishness:
- The Best International Stock for 2007: Cemex
- Concrete Softens at Cemex: Fool by Numbers
- 3 More Kings of Cash
In our Global Gains investing service, we scour the markets for opportunities and unique situations. Take a free 30-day trial today.
Nathan Parmelee has no financial interest in any of the companies mentioned. The Motley Fool has an ironclad disclosure policy.