AFTER three decades of being confined to the market in the Republic, Readymix is now about to break out of this restrictive mould. It is poised to move into new pastures in Northern Ireland and the Isle of Man.
That must be seen as a healthy move for the company and its shareholders and it will give a marginal boost to the dwindling Irish Stock Exchange. Readymix should now seize this opportunity to widen its horizons further. But to move further afield, it will need permission from its 74 per cent British parent, RMC.
The move by RMC to sell RMC Caterwood, its subsidiary, which has substantial building materials businesses in Northern Ireland and the Isle of Man to Readymix for £22.4 million, does indicate a degree of flexibility by the British plc. The outside shareholders in Readymix which control 26 per cent of the company, will be asked to approve the deal in an extraordinary general meeting on May 2nd. They should do so with alacrity.
The deal involves the payment of £22.4 million which will be partly funded by the placing of new shares at 97p per share. This placing has had a successful response from institutional investors in Ireland, England and Scotland. There is also an open offer, at the same price, on the basis of one for every three held.
What is interesting about the funding is that RMC will take up only 3.55 million shares, much lower than its entitlement of 9.8 million shares. As a result, its stake will go down to between 62 per cent and 65 per cent. The shares should therefore become more marketable.
Readymix should explore the possibility of doing further deals with RMC. Also, other acquisitions could be made once it has digested Caterwood. These deals could be funded in a similar fashion which would further enhance the number of outside shareholders.
There are straight financial advantages to the takeover of Caterwood. While Readymix's net cash position of £5 million would be turned into a gearing of some 27 per cent, that would still leave it with a good deal of financial manoeuvrability.
The deal is earnings enhancing. On a historic pro forma basis, earnings per share would be 11.5p compared with Readymix's 10.4p. Net assets would be diluted because of a large goodwill item. However, its sales would be doubled to £90 million, giving it critical mass.
That would considerably enhance its buying power, particularly of cement, it main raw material. Readymix buys all its cement from Irish Cement - wholly owned subsidiary of CRH while Caterwood buys all its cement from Blue Circle. The enlarged group will use 300,00.0 tons of cement with a value of some £20 million which will give it clout when negotiating supplies.
There are plenty of other areas where an integration of the two companies should lead to substantial benefits. Up to now, Readymix and Caterwood operated independently and almost exclusively within their own territories. Readymix, for example, has a quarry in Letterkenny while Caterwood has concrete works in Derry but the businesses never overlapped. Also, Readymix has a readymixed concrete plant in Balbriggan but never went north of the border. Caterwood has a plant in Newry but never went south of the border. Benefits from integration would also flow in the product side. Readymix, for example, manufactures concrete pipes while RMC is not in that business.
Readymix has no builders providers business. Caterwood, in contrast, has 10 Lowdens builders merchants outlets. The enlarged group is likely to expand the Lowdens chain into the Republic. The only constraint to that form of expansion is the difficulty of getting suitable locations. But Readymix has very good locations in the Republic with surplus land. In Naas, for example, it has an 18 acre site. An expansion of Lowdens into the Republic would compete directly with Heiton and Grafton.
There is obviously considerable scope for the enlarged Readymix to expand its operations. It is now 26 years since Readymix's parent, made its unsuccessful bid for Roadstone which shortly afterwards merged with Irish Cement to become an international building materials group. There is little prospect that Readymix will catch up. But its nose is now pointed in the right direction, and with a continuing flexibility from its parent, it could become a more geographically diversified group, better able to ride out those tedious construction cycles.
