Martin Marietta Materials Inc (MLM.N) said it would buy Texas Industries TXI.N for about $2 billion to strengthen its cement business and become the No.1 U.S. producer of gravel, sand and crushed stone.
The deal will increase Martin Marietta's footprint in the booming markets of Texas and California, which have led the housing rebound in the United States and have experienced some of the highest increases in home prices.
"The cement industry within Texas is very attractive. The projected supply and demand into the future are very tight and that could provide strong pricing opportunities," Longbow Research analyst Garik Shmois said.
Texas Industries, the largest producer of cement in its home state, shipped 4.4 million tons of finished cement in fiscal year 2013.
Martin Marietta, which produced 128 million tons of construction materials in 2013, said the addition of 15 million tons Texas Industries shipped would have made it the largest producer of aggregates.
Texas shareholders will receive 0.7 Martin Marietta shares for each Texas share held.
The deal values Texas Industries at $71.95 per share, which represents a premium of about 22 percent to its closing price on December 12, when Bloomberg reported that the company was working with Citigroup to find a buyer.
Martin Marietta shares rose as much as 6.7 percent to $109.68 on the New York Stock Exchange on Tuesday. Texas Industries shares rose to $75.38.
Texas Industries had put itself up for sale as its largest shareholders, Southeastern Asset Management and NNS Holding, sought to exit their stakes.
The two shareholders, who together have about 50 percent stake in Texas Industries, have agreed to vote in favor of the transaction, Martin Marietta said.
Martin Marietta would also assume Texas Industries' debt of$700 million.
Martin Marietta had made an unsolicited bid for bigger rival Vulcan Materials Co (VMC.N) in 2011 but the Birmingham, Alabama-based company rejected the offer.
"Texas Industries' aggregates operations are strategically located in high-growth markets and fit well into our existing portfolio, and its cement operations will further diversify our product and customer mix," Martin Marietta's Chief Executive Ward Nye said. Nye will lead the combined company.
Martin Marietta shareholders are expected to own about 69 percent of the combined company and Texas Industries shareholders the rest.
The deal is expected to add to Martin Marietta's earnings per share soon after its close in the second quarter of 2014.
Martin Marietta also reported a better-than-expected fourth-quarter profit and said it expects 2014 aggregate shipments to increase 4-5 percent.
J.P. Morgan, Deutsche Bank and Barclays advised Martin Marietta while Citigroup advised Texas Industries.
Cravath, Swaine & Moore LLP was Martin Marietta's legal adviser while Texas Industries was advised by Wachtell, Lipton, Rosen & Katz.
(Editing by Don Sebastian)