St Gobain, the world's biggest building materials group, said on Tuesday it would buy clay and mortar company Maxit Group from Germany's HeidelbergCement in a deal worth around $3 billion.
St Gobain said the acquisition would double the size of its industrial mortars division and that Maxit would fit well with the French company's own Weber mortars business.
The companies said the transaction was based on an enterprise value of 2.125 billion euros ($2.9 billion) for Maxit, representing around 11 times Maxit's estimated operating income for 2007 after cost synergies.
HeidelbergCement, Germany's biggest cement maker, said the sale proceeds would help finance its acquisition of British building materials producer Hanson Plc, announced earlier this year.
COST SYNERGIES TARGET
St Gobain shares were up 1.2 percent in early morning trade, while HeidelbergCement shares rose 2.4 percent as European markets overall rose following a slump earlier in the week on worries over the state of the U.S housing market.
At first sight, it looks like a good deal for St Gobain, said Banque Martin Maurel fund manager Michel Dumoulin, whose portfolio includes St Gobain shares.
French brokerage Natixis said that while the acquisition looked pricey, it was a positive move for St Gobain.
St Gobain said it was targeting cost synergies of around 30 million euros from the acquisition of Maxit, and expected the deal to be finalized by the fourth quarter of this year.
Based on latest prices, St Gobain shares have risen around 27 percent since the start of 2007, outperforming a 10 percent rise in the DJ Stoxx European construction sector and a 5 percent fall in the share price of HeidelbergCement.