Eagle Materials Inc (EXP)

[Democritus_of_Abdera]

Ash Grove relationship to EXP...

1) On Aug 19, 2008 Ash Grove (ASHG.PK) purshased approximately 5% of EXP stock for about $24/share (i.e. 2.2M shares for $53.5M). When describing the purpose of the transaction in the SEC Form SC 13D describing this acquisition they stated:

“Depending upon overall market conditions, other investment opportunities available to Ash Grove, and the availability of Common Stock at prices that would make the purchase of additional Common Stock desirable, Ash Grove may endeavor to increase its position in Eagle through, among other things, the purchase of Common Stock or options on such Common Stock on the open market, in private transactions, through a tender offer or otherwise, on such terms and at such times as Ash Grove may deem advisable. Subject to a number of factors, Ash Grove may also decide in the future to propose one or more representatives for election to the board of directors of Eagle or to propose other matters for consideration and approval by Eagle’s stockholders or board of directors. Such other matters may include transactions involving a sale of assets of Eagle or a merger involving Eagle in which Ash Grove or an affiliate may be a participant and which may involve a change in control of Eagle.”

2) On Oct 16,2008 EXP filed SEC Form 8-K alerting investors to ASHG’s intention to purchase an additional $10M or more of EXP stock.

3) On Nov 11, 2008 EXP filed SEC Form 8-K revising its bylaws to restrict ad hoc issues at share holder meetings.

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In my opinion, the above three events foreshadow future alignments between EXP and ASHG including possible joint ventures or asset exchange. Consequently, I have summarized some attributes of ASHG.

ASHG is a private cement company controlled by the Sunderland family operating from Overland Park Kansas.

I calculate that ASHG has a current market value of about $400M; about half that of EXP. The 97K ASHG shares owned by Royce & Assoc represents about 5% of those outstanding ( http://finance.yahoo.com/q/mh?s=ASHG.PK ) and the current ASHG share price is about $200/share,

ASHG has 11 cement plants producing about 8.2M tons/yr, whereas, EXP has 4 plants producing about 2.7M tons/yr. Consequently, ASHG’s cement operation is about 3X’s that of EXP and its annual operating earnings should be in excess of $250M/yr since EXP’s operating earnings from cement are about $100M/yr.

ASHG probably spends about $150M/yr for internal capital projects. This expectation is based upon the anticipated CapEx table presented in their 2006 annual report. The values have been adjusted down to reflect ASHG’s cancellation of their planned construction of a $250M cement plant on the Paiute Indian reservation in Moapa Valley (see: http://cementamericas.com/mag/cement_ash_grove_cancels/ ).

The geographical distribution of ASHG plants complement those of EXP:



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For more information see:

2006 ASHG Annual Report to Employees: http://www.ashgrove.com/pdf/annualreport.pdf

2007 ASHG Annual Report to Employees: http://www.ashgrove.com/pdf/2007%20-%20EmployeeReport.pdf (found under: http://www.ashgrove.com/careers_gettoknow.asp )

2008-08-19: EXP SC 13D describing ASHG initial purchase of EXP stock:
http://www.sec.gov/Archives/edgar/data/918646/000110465908053858/a08-21957_1sc13d.htm

2008-11-24: EXP 8-K: Amendments to Articles of Incorporation or Bylaws: http://www.sec.gov/Archives/edgar/data/918646/000119312508242277/d8k.htm

2008-10-16: EXP 8-K: Notification of ASHG’s intent to increase its EXP share number: http://www.sec.gov/Archives/edgar/data/918646/000119312508211700/d8k.htm