Sachem Head to Push for Breakup of Eagle Materials

(Bloomberg) -- Activist investor Sachem Head Capital Management has built a new stake in Eagle Materials Inc. and plans to push for a breakup and potential sale of the building materials supplier’s various business units, according to people familiar with the matter.

The New York-based hedge fund, which has a 9 percent stake in the company, wants Eagle Materials to consider divesting its frac sand business, said the people, who asked to not be identified because the matter isn’t public. Sachem Head believes the unit, which produces sand used by the oil and gas industry in hydraulic fracturing, has depressed Eagle Material’s share price in recent years, the people said.

Sachem Head also wants Eagle Materials to potentially find buyers for its cement and wallboard units, which the firm estimates could be worth the equivalent of as much as $130 per share in a sale, the people said. Sachem Head believes they would draw strong interest from strategic acquirers or partners because they are performing well, the people said.

Eagle Materials rose 1.2 percent to $73.22 at 3:57 p.m. on Thursday, giving the Dallas-based company a market value of about $3.4 billion. Its shares have fallen nearly 28 percent in the past 12 months.

A representative for Sachem Head declined to comment. A representative for Eagle Materials wasn’t immediately available for comment.

Sachem Head believes Eagle Materials could also return capital to shareholders through a share buyback, as it has relatively little debt, the people said.

The firm ascribes little to no value to the frac sand business, the people said, which has suffered as oil and gas producers in increasingly seek suppliers with local brown sand close to where they drill. That can be cheaper than getting white sand from companies such as Eagle Materials that operate mines in the Midwestern U.S., which used to supply most of the U.S. energy industry’s frac sand.

Eagle Material’s oil and gas business lost $19.6 million during the nine months ended December 31, the company reported in January.

Sachem Head was founded in 2013 by Scott Ferguson, a former partner at Bill Ackman’s Pershing Square Capital Management. It has more than $3 billion in assets under management.

The firm has held active positions in companies across North America and Europe, including CDK Global Inc., Autodesk Inc., Zoetis Inc., Shire Plc, and Whitbread Plc, according to data compiled by Bloomberg.

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