Liam O’Mahoney of CRH says APAC’s operations fit well CRH’s Oldcastle Materials. (Photo courtesy of CRH)

Dublin-based materials powerhouse CRH plc says that its U.S. subsidiary, Oldcastle Materials Inc., is buying APAC, the highway construction and materials unit of Ashland Inc., for $1.3 billion. The companies expect to close the deal in a few weeks.

CRH describes the acquisition as its biggest transaction ever and one that would add significantly to the company’s already extensive U.S. materials business. Liam O’Mahoney, CRH’s chief executive, noted in a press conference that Ashland’s properties in the Midwest and South would fit nicely with CRH’s U.S. materials business unit and its operations in the Northeast. “There’s very little overlap with our more northern-based business,” says O’Mahoney.

CRH’s existing Americas materials division produced more asphalt than any other U.S. company in 2005 and reported sales of $3.9 billion and earnings (before interest, taxes, depreciation and amortization) of $613 million.

CRH says it will keep APAC’s management intact, but there will be changes. Covington, Ky.-based Ashland operated APAC with an emphasis on contracting first and materials sales second, OMahoney says. While APAC’s asphalt has been transferred to its contractors at cost, CRH says, CRH would always transfer its materials at market prices. The acquisition “is an opportunity to refocus [APAC] closer to our model,” says O’Mahoney.

At the same time, Ashland executives say the sale will help them fulfill their strategy of making Ashland a diversified, global chemical company that is valued on that basis by investors.

Addressing investors at a conference call held the day the deal was announced Aug. 21, Marvin Quinn, Ashland’s chief financial officer said, “You may be asking, ‘With APAC performing well and [the U.S.] highway bill providing funding growth, why sell APAC now?’”

In addition to not fitting the company’s focus on chemicals, “looking forward we see some headwinds” for APAC, Quinn said.

Of most concern is the 36% increase in the price of a ton of hot mix asphalt in the last year, said Quinn. And U.S. federally funded highway construction is expected to grow 4% over the next five-year period, he added. “Unless government budgets for road construction increase materially, we expect a decline in demand and larger organizations such as the combined Oldcastle APAC may be better equipped to deal with such challenges.”

“Given our declared strategy and rather than running the risk of riding out the next cycle we decided to exit the business and receive the attractive value,” he said.