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Shares in Breedon Aggregates (LON:BREE) spiked 6% after it unveiled plans to acquire Hope Construction Materials for £336mln from a firm jointly run by the Mittal family.
The cash, debt and paper deal sees the group move decisively into the cement market, while expanding its UK footprint.
Geographically, the transaction will strengthens current Breedon activities in the Midlands and Scotland, while establishing it in southern, northern and Welsh markets, said broker Peel Hunt.
Hope, which owns 152 concrete plants as well as five quarries, generated revenues of almost £286mln last year and underlying operating profits of £37mln.
“I think they and we felt the combination with Breedon was an extremely compelling and together the balance of the business is that much better and the prospects for future growth look that much better as well,” said chief executive Simon Vivian.
The deal is expected to be “double digit accretive” to earnings per share as well as resulting in £10mln of cost savings.
The Mittal family and its partner, as well as receiving cash, will take an 18.4% stake in the enlarged Breedon. Hope’s chairman, Amit Bhatia, will join the Breedon board as a non-exec.
Once the takeover is completed Breedon will become Britain’s leading independent building materials group – a vertically-integrated business with nearly 60 quarries, more than 200 ready-mixed concrete plants and around 750mln tonnes of mineral reserves and resources.
Breedon chairman Peter Tom said: “Under Amit's leadership, Hope has delivered an outstanding performance over the last three years and has become a formidable competitor in the UK market.
“Together we will be an even stronger business, complementing one another geographically, operationally and culturally.
“We're particularly pleased that Abicad will become a significant shareholder in the enlarged Breedon group and look forward to welcoming Amit to our board.
“This acquisition is well-timed, with UK construction output forecast to expand by around 15% over the next four years and volumes of all our major products expected to grow strongly.
“We are confident that we will be able to continue delivering significant value for our shareholders in the coming years, with an even stronger platform for growth.
“We very much look forward to welcoming everyone at Hope to the Breedon family."
The shares, up more than a half in the past year, rose a further 2.6% in late morning trade to change hands for 63p each.
Broker Peel Hunt pushed out its price target to 75p from 60p in the wake of the deal as it repeated its ‘buy’ advice.
It forecast a ‘decent jump’ in earnings per share of between 10-15% next financial year, with a much larger rise, in the order of 35%, the following year.
A trading statement that accompanied the deal announcement revealed Breedon is in rude financial health.
It said revenues in the 10 months to October 31 were up 22% compared with the comparable period a year ago, while underlying profits (EBITDA) should be at the top end of the market range.
Broker Canaccord said: “We view this morning’s announcements from Breedon Aggregates as being very positive and the bias to forecasts remains on the upside, thus underpinning our positive stance on the stock.”