Vulcan to Buy Florida Rock for $4.6 Billion to Get Raw Material (45% premium!)

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Feb. 20 (Bloomberg) -- Vulcan Materials Co., the biggest U.S. producer of highway construction materials, will acquire Florida Rock Industries Inc. for $4.6 billion to gain concrete- making capability in the U.S. Southeast.

Florida Rock shareholders will receive cash and stock valued at $68.03 a share, a 45 percent premium to the closing price Feb. 16, Birmingham, Alabama-based Vulcan said yesterday in a statement.

Vulcan said the deal will increase its reserve of crushed stone and sand used to make concrete, particularly in Florida where sources are scare. The transaction follows the $11.7 billion unsolicited takeover bid by Cemex SA for Australia's Rinker Group Ltd., which gets 85 percent of its profit from the U.S. Announced purchases of building-materials companies climbed 24 percent to $50.8 billion in 2006, according to Bloomberg data.

``Combining with Florida Rock further diversifies and broadens our reach and regional exposure, providing us with a significant presence in Florida, one of the fastest growing markets for aggregates in the U.S.,'' Vulcan Chief Executive Officer Don James said in the statement.

The acquisition, which should close in the middle of this year, will add to earnings starting next year, Vulcan said in the statement. It will produce cost savings of $50 million a year, the company said.

Vulcan will pay for 70 percent of Florida Rock's stock in cash and offer 0.63 of one of its shares for each of the remaining shares. Florida Rock's investors will receive the cash and stock on a prorated basis.

LaFarge and Cemex

Shares of Vulcan Materials fell 50 cents to $111.81 in New York Stock Exchange composite trading on Feb. 16. They have risen 44 percent in the past year. Shares of Florida Rock fell 40 cents to $46.96. They have fallen 17 percent in the past 12 months.

Companies including Lafarge SA, the world's biggest cement maker, and No. 3 Cemex of Mexico are making acquisitions to secure sources of raw materials and tap surging demand in countries from Egypt to China.

Lafarge paid $3.5 billion for its North American unit last year to speed decisions and increase earnings. Lafarge, based in Paris, said on Feb. 14 fourth-quarter sales rose 10 percent to 4.2 billion euros ($5.5 billion) as it expanded in China and North America.

The purchase of Florida Rock will increase Vulcan's reserve of aggregate, or the crushed stone and sand used to make concrete, by about 20 percent to 13.9 billion tons, including about 2.5 billion tons in Florida, the company said in the statement.

Vulcan Profit Rises

Vulcan has increased both sales and net profit for eight consecutive quarters, according to Bloomberg data. Sales gained 15 percent to $3.34 billion, and profit rose 20 percent to $467.5 million last year. Vulcan's shares have more than doubled in the past five years, beating the 69 percent rise in the Standard & Poor's 500 Materials Index during the same period.

Florida Rock's sales gained 19 percent to $1.37 billion last year, and profit increased 34 percent to $211.4 million. Florida Rock's shares have almost tripled in the past five years.

Cemex, the world's third-largest cement maker, said on Jan. 29 fourth-quarter profit jumped 55 percent to $377 million, or 55 cents a U.S. share, bolstered by sales in Mexico, Spain and the U.K.

Susan Burns, an outside spokeswoman for Vulcan with Sard Verbinnen & Co., said yesterday she didn't immediately have additional information on the purchase. Florida Rock spokesman John Milton didn't immediately return calls.

Baker Family Approves

The Baker family, which founded Florida Rock and is the company's largest shareholder, has agreed to support the transaction, Vulcan said. Florida Rock Chief Executive John Baker will become a director of the company, while Tom Baker, Florida Rock vice president of cement and aggregates, will become president of Vulcan Materials' Florida Rock unit.

Vulcan, which had made five acquisitions in the past two years, is rated a ``buy'' by seven of the nine analysts in a Bloomberg survey, with two holds. Florida Rock has five ``buy'' ratings, and four analysts say hold.

Goldman, Sachs & Co. acted as financial adviser to Vulcan, and will provide financing for the purchase, while Lazard Freres & Co. acted as financial adviser to Florida Rock. Wachtell, Lipton, Rosen & Katz served as Vulcan Materials' legal counsel and Weil, Gotshal & Manges and McGuireWoods served as Florida Rock's counsel.

Florida Rock has 3,500 employees, less than half Vulcan's approximately 8,000 workers in the U.S. and Mexico, the companies said.

In 2006, Vulcan shipped 255 million tons of aggregates. Vulcan has over 11 billion tons of zoned and permitted aggregates reserves, sufficient to last, on average, about 44 years at current production rates, the company said.