The CSR Groupis continuing its expansion in the US with the agreement by CSR America (CSRA)to purchase the aggregates and cement company, Florida Crushed Stone HoldingsInc (FCS), for US$348 million, subject to regulatory approvals.
CSR Group ManagingDirector Peter Kirby said Florida is one of the most attractive and high growthmarketplaces for heavy building materials in the US
“Theacquisition of FCS presents CSRA with significant complementary expansionopportunities on the west coast and in north central Florida - areas where CSRAis currently under-represented,” he said.
CSRA CEO DavidClarke said US cement consumption forecasts for the period 1999-2003 show thatsix of the 10 projected fastest growing marketplaces are in Florida, with fourof them in the area serviced by FCS.
Cement,aggregate and roadbase consumption will also be aided by the US Government’sTransport Equity Act for the 21stCentury (TEA-21) $216 billionhighway infrastructure program. TheTEA-21 allocation for Florida is up56% on the previous six year program, well above the national average of 45%.
“More than 50%of FCS’s products are used in civil construction,” said Mr Clarke.
“In addition,Florida’s population growth between 1980-99 was 2.3% p.a. compound - one of thehighest growth rates in the US, and more than double the national average. Due predominantly to continuing highlevels of interstate immigration, this strong population growth is expected tocontinue, with the forecast growth rate for Floridabeing almost 60% above the national average through to 2020
The FCSacquisition includes:
an aggregates quarry at Brooksville (north of Tampa), producingaround 4 million tons p.a.
three limerock (road base) quarries in west central Florida(around 5 million tons p.a.)
a dry process cement mill at Brooksville - currently the lowestcost cement mill in Florida - which produced 742,000 tons of cement in calendar1999, all sold externally
various other assets including a small sand mine in southernGeorgia, a specialty cement products plant near Orlando, Florida and aggregatesand cement transport operations.
“The strategic attractiveness of FCS isextremely high, particularly with one of the lowest cost cement mills in the USand a very well-positioned aggregates quarry,” said Mr Clarke.
The recently-upgraded Brooksville quarry has84 million tons or around 20 years of DOT (US Department of Transport) qualityaggregates reserves, plus around 700 years of limestone reserves to service thecement mill. The three limerockquarries have average reserves of around 55 years.
CSRA is the largest cement user in Florida.Including FCS, it will sell and use around 3.6 million tons p.a., butmanufacture only 1.8 million tons.
Mr Kirby said the FCS acquisition would enableCSRA to expand into an area of Florida where the company was previouslyunder-represented, with the opportunity for further expansion over time.
“CSR America management is confident about itsability to deliver significant value from these assets. There are significant synergy benefitsinvolved, together with accompanying expansion opportunities,” said Mr Kirby.
“This acquisition is in line with CSRAmerica’s strategy of acquiring quality assets with low cost positions and goodgrowth opportunities, which will enhance its ability to service customers andbuild shareholder value.”
FCS wasestablished in 1971 by its current Chairman and CEO, Mr F. Browne Gregg. From a single aggregates quarry inBrooksville, Mr Gregg has expanded FCS into a substantial quarry products andcement producer, supplying customers along the west coast and throughout thenorth central regions of Florida and into southern Georgia.
“Mr Gregg isrecognised as an innovative, capable and successful entrepreneur who has builta fine organisation,” said Mr Clarke.
The US$348million purchase price comprises US$266 million for 100% of the shares in FCSHoldings Inc and US$82 million to take over the existing debt within the FCSGroup. It also includes workingcapital which is subject to normal closing adjustments.
The acquisition price represents an EBITDAmultiple of around 8.7 times. Theacquisition is projected to be earning above its cost of capital after thefirst full year - after returning close to WACC* within the first full year ofoperation.
Subject toregulatory clearance, settlement is expected in late July-August.
13 June 2000
* WACC : weighted average cost of capital