May 15, 2007 / 7:08 AM / 11 years ago

HeidelbergCement agrees to buy Hanson

FRANKFURT/LONDON (Reuters) - German cement maker HeidelbergCement AG (HEIG.DE) has agreed to buy Britain’s Hanson Plc HNS.L for 8 billion pounds ($15.8 billion) to create the world’s second-largest company in construction materials.

The cash offer of 1,100 pence per share would be the biggest takeover in the sector and creates a building materials company with a market value of $34 billion, leapfrogging Lafarge LAFP.PA and challenging top-ranked Saint Gobain (SGOB.PA).

The combination of the world’s fourth-largest cement maker and biggest aggregates specialist will have revenues of around 15 billion euros ($20 billion) and more than 70,000 employees, the two firms said in a statement on Tuesday.

The deal also marks the departure from the stock market of the name Hanson, once one of the world’s largest conglomerates.

“The strategic fit has been made, and with it Heidelberg joins the global players in the segment, in terms of profitability and size,” said WestLB analyst Ralf Doerper.

The deal highlights the growing attractiveness of Hanson, which produces aggregates such as crushed rock and gravel, as the sector consolidates and companies look to boost margins and market share in what is a highly fragmented industry.

“The price is high, but a company like Hanson does not come as a bargain,” Heidelberg Chief Executive Bernd Scheifele said at a news conference on Tuesday. “We are the ideal match in terms of our products as well as our geography.”

Heidelberg expects synergy benefits of 200 million euros by the end of 2009, mainly from overlapping operational headquarters in Britain and North America. Scheifele said the firm did not plan major job cuts.

It aims to complete the deal in the third quarter and finance it through a combination of hybrid capital issuance of up to 2 billion euros, the sale of debt and divestment of selected non-core assets. Deutsche Bank and Royal Bank of Scotland have fully underwritten the acquisition facilities.

Heidelberg said some of the assets it may consider selling to help finance the deal include its Maxit unit, and that Hanson could also sell some units such as its bricks business.

GERMAN BILLIONAIRE

Heidelberg, majority controlled by German billionaire Adolf Merckle, founded its first cement plant in 1873 and focused on southern Germany until the end of the 1960s. A flurry of deals

has given it a presence in more than 50 countries worldwide.

Hanson started in 1964 and grew under the leadership of James Hanson and Gordon White into a multinational conglomerate ranging from cigarettes to batteries, toys and Jacuzzis. It was also involved in gold mining in Australia and chemicals in the United States during the 1970s and 1980s.

In 1996, the company demerged its businesses into four separate firms, including Imperial Tobacco and the building materials business which remained Hanson Plc.

The offer price represents a premium of 29 percent to the closing price of 852p on May 2, the last business day before the announcement of Heidelberg’s interest.

Hanson shares, which hit a record 1,130p in early May on Heidelberg’s bid interest, rose 4.7 percent to 1,107p by 1408 GMT. Heidelberg shares fell 1 percent to 116.50 euros.

The combined firm would become the largest producer of aggregates, the second largest in ready-mixed concrete and the fourth largest in cement, earning 40 percent of revenue from North America, 30 percent in Europe and 16 percent in Britain.

The offer, worth more than 12 times Hanson’s 2006 EBITDA (earnings before interest, tax, depreciation and amortization), represents a rich premium versus recent deals in the sector.

These include a $14 billion agreed deal between Cemex (CX.N) (CMXCPO.MX) and Rinker RIN.AX at 10.4 times EV/EBITDA multiples and a $4.6 billion deal between Vulcan Materials (VMC.N) and Florida Rock Industries FRK.N at 11.2 times, according to Merrill Lynch.

Analysts said the deal may trigger further consolidation in the sector, although the prospects of a counter-bid were low due to high valuation multiples and potential antitrust issues in Britain for companies such as Cemex, Lafarge and Holcim.

Heidelberg also said on Tuesday it did not expect to see a counter bid for Hanson.

“We see CRH (CRH.I) as the next most likely bid candidate. There is a chance of CRH gaining a bid premium looking forward,” said Mike Bridges at Merrill Lynch, adding Lafarge may also be able to unlock value by selling the aggregates division.

The cost of insuring debt of both Heidelberg and Hanson fell on the news, with five-year default swaps on Hanson down 15 basis points and Heidelberg off 8 basis points, suggesting the market believes Heidelberg will achieve its aim of remaining investment-grade.

Heidelberg is rated Baa3 by Moody’s Investors Service and BBB- by both Standard & Poor’s and Fitch Ratings, all on the very lowest notch of the investment-grade category.

Deutsche Bank is acting as financial adviser to Heidelberg and Rothschild is Hanson’s financial adviser.

Additional reporting by Richard Barley

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