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Heidelberg/Hanson

May, 15 2007

(London, UK) -- How much? It must have taken Hanson's board all of three seconds to decide to recommend HeidelbergCement's £11 a share cash offer to shareholders. This equates to an enterprise value for the UK building materials company of £9.5bn. That is 12.3 times trailing earnings before interest, tax, depreciation and amortisation. Deals in the sector have, on average, been done at 8.4 times over the past decade. Heidelberg is also paying almost twice Hanson's average multiple for the past six years. And Hanson was already expensive before Heidelberg's interest was made public on May 3 – at a share price 30 per cent lower than Tuesday's offer. Investors might hope that the equally heady valuations recently paid by Cemex for Rinker and Vulcan for Florida Rock raise the chance that a higher offer may yet emerge. But it is hard to see where it will come from. Cemex clearly has other things on its plate, while Holcim may have antitrust issues in the UK. France's Lafarge may raise similar competition concerns and is, in any case, focusing on internal improvements. It has also said it prefers to pursue smaller, bolt-on acquisitions – shareholders would view a highball bid to scupper its German rival's ambitions as a worrying change of strategy. Temptation, however, could come from a rare chance to purchase the world's second biggest aggregates producer, where supply options are extremely limited. This makes Hanson a "strategic" asset, a word often synonymous with irrational decision-making. Even so, outbidding Heidelberg looks nearly impossible. Apart from offering the best fit, the fact that one family owns about 80 per cent of its shares gives its management greater flexibility. It can, more or less, pay what it likes; and is able to look beyond the current slowdown in US housing. Without this luxury, the outlook for the North American market might just be too scary for other bidders – as it may also have been for Hanson.

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