Plans to Separate Heavy Materials and Light
Materials Businesses; Reviewing Alternatives for Oil and Gas
Proppants
Eagle Materials Inc. (NYSE: EXP) (“Eagle” or the “Company”)
today announced that its Board of Directors has approved a plan to
separate its Heavy Materials and Light Materials businesses into
two independent, publicly traded corporations by means of a
tax-free spin-off to Eagle shareholders. The separation is expected
to be completed in the first half of calendar 2020.
The Company also announced that it is actively pursuing
alternatives for its Oil and Gas Proppants business with the
support of an independent financial advisor. Additionally, the
Company’s Board will continue to evaluate any opportunity to create
value that may arise prior to completion of the separation.
Today’s announcement follows a thorough review of strategic,
operational and financial alternatives to enhance shareholder value
by the Company’s Board and management team, with the support of
independent financial and legal advisors and input from the
Company’s largest shareholders, including Sachem Head Capital
Management.
Mike Nicolais, Eagle’s Chairman stated, “The Eagle Board and
management team has maintained a regular evaluation of the
strategic and financial options to best position the Company to
drive value for shareholders. Historically, our Light and Heavy
businesses have provided Eagle with balance and financial strength;
however, the Board recognized that our industry-leading performance
is not adequately reflected in the market value of the combined
company. We engaged with shareholders and took their input into
account in coming to this conclusion. Based upon our recent
comprehensive review of various strategic, operational and
financial alternatives, the Eagle board and management team believe
this separation will provide each of the businesses with the
financial flexibility to pursue its own growth strategies and
operating priorities, and will develop the appropriate capital
structure and allocation priorities to generate long-term growth
for all shareholders. Accordingly, we have determined that now is
the optimal time to pursue this separation.”
“We believe that by pursuing the actions announced today the
Eagle Board is taking significant steps to unlock the Company’s
inherent value,” said Scott Ferguson, Managing Partner of Sachem
Head. “Given these developments and the substantial value creation
potential, Sachem Head is withdrawing our director nominations and
proposals, and we will fully support the Board’s recommendations at
Eagle’s 2019 Annual Meeting. We are pleased with the constructive
work of the Eagle Board and look forward to seeing significant
value creation for all shareholders in the months ahead.”
Benefits of Separation
Following completion of the separation, each company is expected
to be well capitalized, generate strong free cash flows, be well
positioned for future growth and be best-in-class in its respective
industry. Eagle believes that as two separate companies, each
business will be able to:
- Focus on its distinct strategic
priorities that best position the business for profitability and
growth, with targets and goals that fit its own markets and unique
opportunities;
- Implement a capital structure that is
tailored to the needs of the businesses it operates;
- Allocate resources and deploy capital
in a manner consistent with its strategic priorities; and
- Allow new and existing investors to
value the two companies based on their particular operational and
financial characteristics.
Two Focused Businesses
Eagle – Heavy Materials
After the separation, the Company’s existing Heavy Materials
business, a U.S.-heartland cement-plant system with complementary
concrete and aggregates operations, is expected to continue to
produce strong margins and significant cash flows. Eagle will
remain focused on low-cost production, operate in key U.S.
geographies with favorable market dynamics and drive profitable
growth through both strategic acquisitions and the organic
development of its asset network. The business enjoys long-lived,
owned raw material reserves that will sustain its operations over
the long term. This business will operate as a distinct pure-play,
U.S.-only cement company with excellent future prospects as the
largest U.S.-owned producer.
Eagle – Light Materials
Upon separation, Eagle’s existing Light Materials business is
expected to continue to be a benchmark producer of gypsum wallboard
and recycled paperboard. This business has a long track-record of
superior margin performance, driven by its sustainable low-cost
producer positions in U.S. sunbelt markets, and has uniquely
distinguished itself through industry business cycles. The business
includes an integrated paperboard mill that utilizes advanced
technologies to supply the wallboard plants with high-performing,
low-cost facing paper. The business enjoys long-lived raw material
reserves as well as industry leading levels of customer
satisfaction.
Oil and Gas Proppants Business
In connection with the separation, Eagle is actively pursuing
alternatives for its Oil and Gas Proppants business with the
support of an independent financial advisor. There can be no
assurance that this process will result in any particular action
being taken, nor can there be any assurance regarding the timing of
any such action. Eagle does not intend to disclose developments
regarding this process if and until an action is announced, or the
process is otherwise concluded.
Management Structure and Governance
Upon completion of the separation, each company will have its
own management team and an independent board of directors that will
include members of the current Eagle Board. Full management teams
and boards for both companies will be named in the months leading
up to the formal separation.
Transaction Details, Conditions and Timing to Close
Upon completion of the transaction, each company is expected to
be publicly listed and traded on nationally recognized stock
exchanges. Both companies will remain headquartered in Dallas,
TX.
The transaction is subject to certain conditions, including,
among others, obtaining final approval by Eagle’s Board of
Directors, receipt of a favorable opinion of tax advisors with
respect to the tax-free nature of the transaction for U.S. federal
income tax purposes and effectiveness of a Form 10 registration
statement to be filed with the U.S. Securities and Exchange
Commission. Eagle may, at any time and for any reason until the
proposed transaction is complete, abandon the separation or modify
or change its terms.
Advisors
Goldman Sachs & Co. LLC is serving as financial advisor to
Eagle, and Wachtell, Lipton, Rosen & Katz is serving as its
legal advisor.
About Eagle Materials Inc.
Eagle Materials Inc. manufactures and distributes Cement, Gypsum
Wallboard, Recycled Paperboard, Concrete and Aggregates, and Oil
and Gas Proppants from more than 75 facilities across the US. Eagle
is headquartered in Dallas, Texas.
Forward-Looking Statements
This press release includes certain forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, Section 21E of the Securities Exchange Act of 1934 and
the Private Securities Litigation Reform Act of 1995, including
statements about expected results, the strategic portfolio review
process, potential transactions and other matters that are not
historical facts. Forward-looking statements may be identified by
the context of the statement and generally arise when the Company
is discussing its beliefs, estimates or expectations. These
statements are not historical facts or guarantees of future
performance but instead represent only the Company’s belief at the
time the statements were made regarding future events which are
subject to certain risks, uncertainties and other factors, many of
which are outside the Company’s control. Actual results and
outcomes may differ materially from what is expressed or forecast
in such forward-looking statements. All forward-looking statements
made herein are made as of the date hereof, and the risk that
actual results will differ materially from expectations expressed
herein will increase with the passage of time. The Company
undertakes no duty to update any forward-looking statement to
reflect future events or changes in the Company’s expectations.
Please refer to the publicly filed documents of the Company,
including the most recent Forms 10-K and 10-Q, for additional
information about the Company and about the risks and uncertainties
related to the Company’s business which may affect the statements
made in this press release.
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version on businesswire.com: https://www.businesswire.com/news/home/20190530005436/en/
Investor ContactFor additional information, contact at
214-432-2000.Robert S. StewartExecutive Vice President,
Strategy, Corporate Development and CommunicationsorMedia
ContactJoele Frank, Wilkinson Brimmer KatcherJim Golden /
Clayton Erwin / Sophie Throsby(212) 355 4449
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