Inside Wall Street: TXI catches investor attention

Is the beleaguered maker of heavy construction material a buyout target?

By Gene Marcial Jan 25, 2012 1:42PM

Image: Construction workers (© image100/Corbis)The U.S. construction industry continues to be in the dumps, and companies like Texas Industries (TXI), a maker of heavy construction materials that has been losing money since 2009, remain under tremendous pressure. For fiscal 2011, Texas Industries posted another loss that was worse than analysts had expected. 

Its stock -- which dropped from $46 a share to a 52-week low of $21 in November 2011 -- has since been moving up, closing at $31 on Wednesday. But analysts who track the stock remain bearish, with none of them recommending it as a "buy." They expect TXI to remain on the ropes and continue to rate it as "underperform."

Todd Vencil of investment firm Sterne Agee says the outlook for Texas Industries "is still uninspiring" and notes that CEO Mell Brehlus anticipates demand remaining in the doldrums. "We don't expect the demand environment or the company's liquidity situation to significantly improve in the next several quarters," Vencil says. He sees the stock heading even lower -- to $22.


Yet some of Texas Industries' major shareholders continue to build up their stakes in the stock. The reason: Texas Industries will have to dismantle its poison pill sometime this year. It put up the anti-takeover measure in 2010, when it signed a standstill agreement with one of its major stakeholders, NNS Holding. NNS is the investment vehicle of the billionaire Nassef Sawiris, who is estimated to have a net worth of $6.5 billion, making him the 182nd richest person in the world, according to Forbes.


NNS now has a stake of more than 22% in Texas Industries. In return for NNS' promise in July 2010, when it had more than 10%, to limit its stake to 20% until Dec. 31, 2011, Texas Industries promised to eliminate the anti-takeover rule. After Dec. 31, 2011, NNS started to buy more shares. Texas Industries didn't return a call to comment on whether it has actually eliminated the poison pill.


One other noteworthy piece of information is that other large stakeholders have been raising their holdings. One is Longleaf Partners, which owns a 10% stake. It has been buying shares, apparently in anticipation of the dismantling of the anti-takeover measure.


"Longleaf is considered one of the shrewdest activist money managers and has consistently been ranked as one of the best-performing investment managers in the country," says Charles LaLoggia, an investment consultant and long-time avid Wall Street watcher.


Another big institutional holder in Texas Industries is Shamrock Activity Value Fund, which continues to add to its stake of 10%. Neither NNS nor Shamrock could be reached for comment.


"From what I can gather, there appears to be a classic takeover situation brewing in Texas Industries," says LaLoggia, who notes that the long-depressed stock has reached such a low point that it has become enticingly cheap in the wake of a recovering economy. With the industrial sector showing signs of a revival, along with the manufacturing industry, the construction segment should also start to rebound, LaLoggia says.


Texas Industries should certainly be one of the biggest gainers in such an improving scenario, he adds. And, indeed, when Wall Street wakes up to the possibility that the industrial and manufacturing sectors are no longer limping and are in fact on the path to a sustained recovery, shares of companies like Texas Industries will be ahead of the crowd and snap back strongly.


True, Texas Industries has yet to see a "buy" recommendation from a major Wall Street analyst. But when one comes, expect a deluge of bullish forecasts for a stock that has long been beaten down. And then expect droves of buying in the stock, which will, most likely, already be winging higher.   

Gene Marcial wrote the column "Inside Wall Street" for Business Week for 28 years and now writes for MSN Money's Top Stocks. He also wrote the book "Seven Commandments of Stock Investing," published by FT Press.




Tags: TXI


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