TRG | The Bottom Line – 8/12

“Don’t fight the obvious.” Sometimes this truism bears out in the public markets. Last week, MDU Resources (MDU) announced the planned spinoff of its Knife River division, bringing another pure play heavy materials producer to the public markets. MDU is a public company ($8.9B enterprise value) headquartered in North Dakota, operating across utilities, pipelines, construction services, and construction materials. The construction materials segment is comprised of the company Knife River, which was recently announced to be separated from MDU in 2023 in a tax-free spin out. Knife River is a vertically integrated heavy materials producer. The company operates 202 quarries (top 10 U.S. aggregates producer) across 14 states (mostly in the Northwest, TX, and CA), as well as 110 concrete plants and 50 asphalt plants. From our perspective, one of the “obvious” takeaways is the spinout of Knife River assets should have happened years ago – electric and natural gas distribution doesn’t exactly fit well with rocks and road construction. The other “obvious” takeaway from this announcement from our perspective is that MDU is willing to make this announcement considering the current market. This tells us that folks that have been sitting on the sidelines waiting for the market to settle down may be ready to jump back in the game.