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Key shareholder presses Eagle to weigh cement, wallboard business split

Sources: Sachem Head Capital Management LP, New York; CP staff

An investment manager holding just under 9 percent of Eagle Materials common stock, Sachem Head LP, is encouraging shareholders to support two director nominees toward the Dallas-based cement, aggregate, concrete and wallboard producer’s early-August annual meeting. Board representation would enable the firm to act on concerns principals have raised over investor confidence in Eagle Materials’ asset mix.

Over the past six weeks, Sachem Head founder Scott Ferguson has pressed the board on a strategic portfolio review. “Sachem Head has tried to work collaboratively to add relevant experience and shareholder alignment to assist in the review,” he explains in a letter to shareholders. “We believe Eagle’s core cement and wallboard businesses are well run, valuable assets that are well positioned within their respective industries. Eagle’s stock price, however, does not reflect the[ir] true value.

“While both of these assets have industry‐leading margins and generate significant cash flow, diversion of resources to fund Eagle’s expansion into Oil & Gas Proppants has resulted in substantial underperformance in relation to peers. Given the lack of synergies among Eagle’s assets, we believe that the public markets have applied a discount to the trading price. In our view, this discount can be eliminated by separating these respective businesses into more focused entities … We believe the cement and wallboard businesses may have a range of attractive strategic alternatives that could provide more value to shareholders than a simple separation.”

A full strategic portfolio review, he adds, will require Eagle directors to “assess complex multivariate alternatives, and understand the financial, legal, and value nuances of each outcome. We have done significant work on these topics, and our strong belief is that having a shareholder in the room with the analytical capacity and alignment to consider these alternatives would help ensure the optimal outcome.”