Wishing on a Texas star

Wishing on a Texas star
Published: 23 October 2009

Texas Industries annual meeting held in Dallas on October 22 looks set to see the Disney family investment firm Shamrock Holdings, replace three incumbent TXI directors with its own appointees.  The Dallas-based cement producer is the largest in Texas and has a major presence in California with two major plants in Oro Grande, near Victorville, and Riverside. Although the official results won’t be released until next week, Shamrock executives said the early returns showed that their company won the seats on the nine-member board by a 4-1 ratio.  The Burbank-based investment firm, known for shareholder activism, started snapping up Texas Industries’ shares in September 2008, when the housing market was a shambles and the cement maker’s stock began to plummet. Stanley P Gold, Shamrock’s president and chief executive, said his firm began agitating for change because it was displeased with the way TXI’s Chairman Robert Rogers was running the cement maker. "It’s a wake-up call to Texas Industries and Mr. Rogers that they better get their act together. " Gold said.  Texas Industries shares peaked at about US$90 two years ago but have fallen by more than half since then. Shamrock, the third-largest TXI’s shareholder with a 10.2 per cent stake, believes construction will bounce back and demand for cement will rise in the coming year as the US emerges from recession. "Now, I want the new board members to work to make me money – me and every other shareholder," Gold said. "After all, that’s why we’re in this business."  Shamrock was started by Roy E Disney as an investment vehicle for the Disney family. Over the years, it has evolved into a multi-pronged investment company that includes five private equity funds with US$2bn in assets. A Texas Industries spokesman said the company would not comment until the official tally was released. But the company issued a news release before the vote Thursday. The statement acknowledged that the cement industry faced challenges but said Texas Industries could overcome them. "We have been navigating uncharted waters for some time now, and I applaud our employees’ positive and effective response to these unprecedented challenges," said Mel Brekhus, Texas Industries’ chief executive. "The current environment is expected to continue for the building materials industry in the short term, but . . . TXI is well-suited to successfully meet these challenges. Earlier TXI company leaders had admitted that in recent weeks it had private settlement discussions with Shamrock with respect to proxy proposals. According to TXI, despite “significant concessions” offered by TXI the negotiations broke down. “We are certainly disappointed with Shamrock’s lack of interest in a cooperative agreements,” said TXI CEO Mel Brekhus. However according to Shamrock,“[TXI’s] proposal for our three nominees to join the board was contingent on the three TXI incumbents remaining in office. The board also informed us that it would not implement two of our three corporate governance resolutions relating to the prompt de-staggering of the board and submitting the company’s poison pill to a shareholder vote.” Shamrock has no doubt been helped in its endeavors by the positive support of two of the company’s largest shareholders. Southeastern Asset Management, Inc., which holds more than nine  per cent of the outstanding TXI shares, and the Egyptian investor Nassef Sawiris, who repotedly now owns almost 15 per cent of TXI common stock. If the new appointees are confirmed one might now expect a root and branch review of the TXI operations, some senior executive casualties and a concerted push to drive up the share price to its earlier levels. Whether a subsequent sale of TXI to another international cement group follows is, at this stage, pure speculation, but in our view, more than likely.