CRH's €1.6bn sale plan in Europe engenders tepid reaction from investors

CRH's €1.6bn sale plan in Europe engenders tepid reaction from investors

CRH’s confirmation of its intention to sell its European distribution business for more than €1.6bn has met a lukewarm response from investors despite the likelihood of more money being returned to them as a result.

Shares in the Irish cement and building materials group rose by just over 2% in both Dublin and London on the confirmation it has agreed to sell the distribution business to funds managed by private equity giant Blackstone for €1.64bn in cash. Reports of the deal - which requires regulatory approval - began to circulate on Monday afternoon.

CRH’s shares have risen by less than 1% in Dublin over the past 12 months and by just over 2% in London over the same timeframe.

CRH had the European division under review since last year and said at the time of its annual shareholders’ meeting in April that it would decide within three months whether or not to sell it.

Blackstone beat rival private equity bidders to the business - which sells plumbing and flooring supplies to building firms.

The deal, however, may please Cevian Capital - the largest activist shareholder in Europe - which bought into CRH earlier this year.

Last month, Cevian broke its silence saying CRH needs to push ahead with extensive structural improvements, which could double the value of the group in the next three-to-five years.

“This is an attractive industry and CRH has a strong position in its main markets, but the company has become too complex, both structurally and operationally, which hampers performance and traps value,” Cevian’s managing partner Christer Gardell said in June.

“The restructuring work that has been done so far is good, but continued far-reaching structural and operational improvements are needed for the group’s assets to reach full potential,” he said.

“The sale concludes CRH’s exit from its distribution businesses across the group and will materially reduce net debt,” said Davy analyst Robert Gardiner.

Davy said the sale should lower CRH’s net debt levels to 1.7 times its earnings.

“That will allow the group to further flex its financial muscle to complete accretive bolt-on acquisitions and to extend its share buyback programme. To date, that programme has returned close to €1.3bn to shareholders in addition to the ordinary dividend,” Mr Gardiner said.

More on this topic

Boris Johnson set to table fresh plans to secure Brexit dealBoris Johnson set to table fresh plans to secure Brexit deal

Barnier tells Britain to 'turn good intentions into a legal text'Barnier tells Britain to 'turn good intentions into a legal text'

Consumer confidence at lowest level for six years due to BrexitConsumer confidence at lowest level for six years due to Brexit

‘Major hurdles’ between EU and Britain remain in Brexit talks‘Major hurdles’ between EU and Britain remain in Brexit talks