CalMat Co., a Los Angeles-based producer of asphalt and ready-mixed concrete, is expected to announce today that it has agreed to be acquired by the nation's largest maker of construction materials for $760 million in cash.
The combination of CalMat and Birmingham, Ala.-based Vulcan Materials Co., if approved by shareholders, would create the nation's largest company specializing in sand, gravel and crushed stone, known in the building industry as "aggregates."
With the addition of CalMat, Vulcan is expected to have estimated 1998 sales of $2.3 billion and 8,700 employees. The merged company, aiming to capitalize on the growing need for infrastructure projects, especially highways in the West, will do business in 21 states from Virginia to California. Vulcan will assume $130 million of CalMat debt.
As part of the deal, CalMat, with about 1,800 employees, will become a subsidiary of Vulcan, continue to be based in Los Angeles and keep its name. Because the two firms do not compete, no production facilities are expected to be closed, said Donald M. James, Vulcan Materials' chairman and chief executive. CalMat has more than 40 sites producing concrete and asphalt or handling debris landfill in California, Arizona and New Mexico, including several in central Los Angeles County.
"Our combined geographic diversity and strong capital base will position us for better growth than Vulcan Materials and CalMat could achieve as separate companies," James said. "CalMat is the first choice we would have for a merger partner in this industry. We like the areas it's in."
CalMat, which traces it origins to a company formed in 1893, serves California, Arizona and New Mexico from offices in Bakersfield, Irwindale, San Diego and Phoenix. Among other projects, the firm is providing asphalt for the $1.9-billion Alameda Corridor, a rail and truck expressway connecting downtown Los Angeles and the ports of Los Angeles and Long Beach.
"CalMat's roots in California go back more than a century, and we are proud of what we have accomplished," said A. Frederick Gerstell, CalMat's chairman and chief executive, who will become a vice chairman and a director of Vulcan.
"In a consolidating, fragmented industry, we felt that we could better achieve our goals as their partner. I don't see this as a loss for Los Angeles. We'll be stronger, our capital base will be bigger and we'll be able to grow," Gerstell said.
Under the agreement, Vulcan will offer to pay $31 a share for CalMat, a nearly 14% premium. In New York Stock Exchange trading on Friday, CalMat's stock rose 56 cents a share to close at $27.19. Vulcan's shares closed at $122.69 on Friday, down $1.56 in NYSE trading.
CalMat's stock price surged 49% last year on expectations that it was poised to benefit from the comeback of the building industry in California. This year, however, the stock had dropped more than 30%, although it rebounded sharply in recent weeks.
Part of the rebound was due to CalMat's strong results in the third quarter, when net income jumped 72% to $16 million, or 67 cents a share, from $9.3 million, or 39 cents a share, a year ago. Revenue for the third quarter increased 17% to $158 million.
Last year, as many construction projects were delayed due to El Nino, CalMat earned just $16.6 million on revenue of $473 million.
The company's biggest shareholder is the Daniel Murphy Foundation in Los Angeles, which owns 16% of the company and has two seats on its board of directors. The foundation, a charitable organization formed by the heirs of CalMat's founders, is named for the late Daniel Murphy, an early California entrepreneur and former president of California Portland Cement.
That company was sold by CalMat in 1990, as part of an agreement to help stave off a hostile takeover bid by New Zealand financier Ronald Brierley.
On the merger agreement expected to be announced today, Goldman, Sachs & Co. was the financial advisor to Vulcan and Credit Suisse First Boston Corp. was financial advisor to CalMat. The expected tender offer will expire on Jan. 1, 1999.