Hard Line Taking Shape Against Cement Company

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Roy Disney is no stranger to corporate shakeups.

His behind-the-scenes machinations at the Walt Disney Co., founded by his famous uncle, contributed to the ouster of two top company executives: Ron Miller in 1984 and Michael Eisner in 2005.

Now his Shamrock Holdings investment firm has found its latest challenge: Texas Industries Inc., a Dallas-based supplier of aggregate and cement with falling revenues and management practices that critics have called into question.

“We obviously don’t think it’s a well-run company,” said Cliff Miller, managing partner of Burbank-based Shamrock.

Disney’s Shamrock Activist Value Fund L.P., which seeks out ailing companies ripe for a turnaround, owns 8.9 percent of the 2,500-employee cement company, known as TXI. On June 29, the fund announced its intention to nominate candidates to fill three seats on Texas Industries’ nine-member board up for grabs in October.

In a five-page letter to Texas Industries’ general counsel, Frederick G. Anderson, Shamrock outlined a litany of complaints:

– The company has a “well-documented record of underperformance” compared with its peers due to “poor management and inefficient capital allocation”;

– Texas Industries’ management has a “disconcerting record of overpromising and underdelivering”;

– And the company “continues to shun” the best practices of corporate governance by, among other things, staggering board elections to prevent majority takeovers and prohibiting shareholders from calling meetings without the board’s consent.

The board, the letter concludes, “is comprised of an insular network of long-term members who do not communicate effectively and transparently” and have implemented “anti-takeover” policies to entrench their own positions.

TXI executives did not respond to requests for comment.

The push for new board members comes in the wake of the two worst quarters in the cement company’s history and amid predictions of another one that could be as bad, said Vicki Bryan, senior analyst at Gimme Credit LLC, a New York firm that follows the homebuilding industry.

The company’s net income declined 78 percent and its revenue 17 percent in the fiscal second quarter that ended Nov. 30. Then in the fiscal third quarter net income was down 65 percent and revenue 33 percent. In the fourth quarter ending May 31, Bryan said, the company is expected to again report poor earnings.

In the same period, she said, the company has eliminated about 10 percent of its work force and reduced capacity in Texas by about 17 percent. TXI operates two cement plants in California: TXI Riverside Cement in Riverside and TXI Oro Grande near Victorville.

Investors have taken it on the shins, too. From a historic high of about $90 per share two years ago, the company’s stock crashed, leveling off in recent months in the neighborhood of $30. The price dropped slightly after Monday’s announcement and closed July 1 at $31.68.


Worldwide recession

The company’s poor performance comes amid the worldwide recession and collapse of the U.S. housing industry that has caused ripples throughout the cement and building materials industries worldwide.

Last year, there was a 21 percent drop in the demand for cement in the United States, and experts are predicting at least an additional 11 percent decline this year.

Other victims include Lafarge North America Inc., a global company based in France that has eliminated jobs at rock quarries and factories in upstate New York, and Mexico City-based Cemex SAB, one of the world’s largest building materials companies; its U.S. sales fell by one-third compared with the height of the housing boom.

Some observers contend the industry is in its worst straits in a century, but even so, Bryan said, TXI has done particularly poorly, with its management failing to communicate the financial status of the company.

“They say one thing and do another,” she said. “There are real problems with what management is communicating to investors.”

In its letter, Shamrock proposes three candidates for seats on the board: Marjorie L. Bowen, a former managing director of the international investment firm Houlihan Lokey Howard & Zukin; Gary L. Pechota, chief Executive of DT-Trak Consulting Inc., a medical billing and claims management in Miller, S.D.; and its own Dennis A. Johnson, managing director of Shamrock Capital Advisors Inc.

Bryan praised Shamrock and its board candidates, saying they “had long experience with advising distressed companies and creditors and they appear to have picked good people.”

Shamrock’s push for power comes less than a year after another disgruntled shareholder Egyptian billionaire Nasseff Sawiris, who owns nearly 15 percent of the company persuaded 49 percent of the eligible voters to withhold their votes for directors Sam Coats and Thomas Ransdell at TXI’s annual meeting in 2008.

While Shamrock’s move is separate and independent, Miller said, it was influenced by Sawiris’ success, which “demonstrates shareholder concerns about the management of the company.”

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