Following its successful £435 million bid for the British brick manufacturer Ibstock, CRH has taken a strategic decision to get out of the builders' merchants business in the UK and has put its Keyline merchanting business up for sale.
CRH has given no indication of the price tag it has attached to Keyline, but analysts in Dublin have indicated that CRH could realistically expect to get at least £200 million sterling (£230 million) - a sum that would make a sizeable dent in the price paid for Ibstock. CRH general manager-finance Mr Myles Lee said that the sale should be completed in about three months, with investment bank Warburg Dillon Read appointed to handle the sale.
Industry sources believe that the big four merchanting groups in the UK - Wolseley, Graham, Meyer and Perkins - are almost certain to bid for Keyline, but other sources said that the Irish merchanting group Grafton is also a potential bidder.
Grafton has been expanding its merchanting business in the UK in recent years and could finance a bid for Keyline, although the CRH subsidiary is worth about the same as the entire Grafton business.
CRH has been involved in merchanting in the UK for over 20 years but has always struggled to generate any reasonable return from what is a low margin business. During the 1990's the entire merchanting industry was severely hit by the weakness in the British construction industry, and it is only in the last two years that CRH has been able to drive Keyline's margins above 4 per cent.
It is understood that in an effort to boost its share of the merchanting market, CRH made a bid last year for the Hall business that was eventually sold by RMC to Wolseley for £121 million sterling. Industry sources believe that having failed to buy Hall, CRH now believes that there is little prospect of boosting its 4 per cent share of the merchanting market and that it is better to exit the market rather be number five in the sector. The Hall price tag - 0.66 times sales - was another factor that may have led CRH to decide to sell Keyline.
The Wolseley/Hall deal was equivalent to 0.66 times sales and it is this multiple that has led analysts to put a £200 million price tag on Keyline. "The only way to build scale in merchanting now is through acquisition and there will probably be plenty of bidders for Keyline," said one analyst.
Mr Lee said: "Number five in a product sector is lower than we would like to be and growing that market share is very difficult. So we decided to make the sale." He emphasised that the sale of Keyline has no implications for CRH's merchanting business in Europe and the US. "We have no intention of selling any of these businesses," he stated.
Meanwhile, there is speculation that despite being committed to spending £435 million for Ibstock - between the purchase price and assumed debt - CRH could be interested in buying all or part of the Swedish cement group Scancem. A 73.5 per cent stake in Scancem held by Norwegian group Aker and Swedish group Skanska has been put up for sale and this stake is currently worth about £1.2 billion.
Scancem is the sixth-biggest cement producer in Europe and has extensive interests in various countries on the continent. Industry sources said that the market value of Scancem suggests that some of the bigger players in the European cement industry might combine to buy the Aker/Skanska stake and then divide up the assets. The source added that there is no prospect of CRH bidding for Scancem on its own, but combining with another group to bid for the company is a distinct possibility.
