A strategic portfolio review initiated in early April has spawned a board-approved plan to separate Eagle Materials’ principal businesses – portland cement and wallboard production –into independent, publicly traded corporations. The proposed separation is scheduled for completion during the first half of 2020, and will entail a tax-free spin-off of stock in Heavy Materials and Light Materials entities to Eagle shareholders.
The standalone Heavy Materials business, which entails a Midwest cement plant system with complementary concrete and aggregates operations, is expected to continue to produce strong margins and significant cash flows. According to management, it will operate as a distinct pure-play, U.S.-only cement company with excellent future prospects as the largest domestically-owned producer. It 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 organic development of its asset network. The Light Materials business is poised to continue as a benchmark gypsum wallboard and recycled paperboard producer, concentrated in Sun Belt states.
“Historically, our Light and Heavy businesses have provided 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,” explained Eagle Chairman Mike Nicolais. “Based upon our recent comprehensive review of various strategic, operational and financial alternatives, the 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 develop the appropriate capital structure and allocation priorities to generate long-term growth for all shareholders.”
“We believe that by pursuing the[se] actions, the Eagle board is taking significant steps to unlock the company’s inherent value,” added Scott Ferguson, managing partner of New York-based investor Sachem Head and a catalyst in the portfolio review. “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 meeting.”
