TXI, shareholders to face off today over board

TXI, shareholders to face off today over board
Published: 22 October 2009

A showdown between the management of Texas’ largest cement producer and some of the company’s largest shareholders is set to come to a head today.

Shareholders in Texas Industries Inc. are scheduled to elect three board directors at a meeting in Dallas. They have a choice between three current directors and three insurgents backed by a fund of Shamrock Holdings Inc., a Burbank, Calif.-based firm that manages the fortune of Walt Disney Co. heir Roy Disney.

Shamrock, the third-largest shareholder in TXI, has spent the last four months criticizing company management. Shamrock has won the backing of two other large shareholders, and several leading proxy advisory firms have recommended that shareholders vote for Shamrock’s candidates.

"My guess is that the Shamrock guys probably win out," said Trey Grooms, an equity research analyst at Stephens Inc. in Little Rock, Ark. "I’d be surprised if they didn’t win."

David Perkins, a spokesman for TXI, declined to comment Wednesday, but he said the company would make a statement today. The results of the vote probably won’t be available until next week, he said.

TXI executives have argued that they and current board members have served shareholders well. While the company has suffered during the severe housing bust and economic recession, its latest quarterly results beat Wall Street expectations.

But according to Shamrock, poor management has caused TXI to perform worse than industry peers. If the Shamrock nominees win seats on the TXI board, the question will be whether they can live up to their own rhetoric.

TXI shares have risen by about 25 percent since late June, when Shamrock launched its battle. They closed at $40.27 a share Wednesday, down $1.24.


Shamrock has told investors that it wants to make operational improvements at TXI, promote management accountability, improve corporate governance and review strategic options.
That doesn’t mean Shamrock is looking to force a sale of TXI, said Stanley Gold, president and CEO of Shamrock Holdings.

" ’Strategic options’ is not a code word for anything other than strategic options," Gold said. "It’s not code for a sale, if that’s what you’re talking about."

Conditions in the global cement industry aren’t ideal for further consolidation, analysts say. Many large cement companies are also coping with the economic downturn, or digesting previous acquisitions.
"I don’t think TXI is a realistic take-out candidate right now," said Grooms. "It’s not a small pill to swallow for anybody."

Dennis Johnson, a Shamrock portfolio manager who is one of the firm’s three director nominees, described his firm as a "patient, long-term investor."

Referring to TXI, he said, "The value that we are talking about at this company can only be unlocked after a lot of work by the board and its management."

Shamrock’s two other nominees are Marjorie Bowen, a former executive with investment banking firm Houlihan Lokey, and Gary Pechota, a former cement executive who now runs a consulting firm called DT-Trak Consulting Inc.

Outlook for company

TXI is one of the largest cement producers in California in addition to its position as No. 1 cement producer in Texas. It also provides products such as sand and gravel, as well as ready-mix concrete.
The company faces lean times in the short term because of the weak economy, analysts say. The outlook is particularly challenging in California, one of the epicenters of the housing bust.

In the long run, however, both Texas and California are widely seen as large, attractive cement markets – the kind of place where owning major plants is apt to translate into healthy profits.

"It makes those assets well-positioned, and they’re modern, good, efficient assets," said Christopher Manuel, an analyst at KeyBanc Capital Markets Inc. in Cleveland. "That’s probably what all these folks find attractive."