Shares in building products group Boral (BLD) jumped sharply yesterday after it did a deal to lessen its exposure to the US and European home building industries.
Boral said in a statement that it will receive $US575 million ($601.8 million) from the planned merger of all of its plasterboard interests with American giant USG as part of a merger of the two group’s non-US and European plasterboard interests.
The shares jumped to end up almost 6% at the close yesterday at $5.03.
That’s a rise of 28c on the day which was one of the best days for the shares for some time.
BLD YTD – Boral shares jump after annnouncing plasterboard JV
While investors liked the news of the deal and the fact that it will be used to cut debt, they were also attracted by the suggestion from Boral yesterday that some capital management proposals might also be on the cards.
Boral said in a statement and briefing that the deal with USG will hold all Asia, Pacific and Middle East plasterboard interests of the two companies in a 50:50 joint venture.
Boral’s plasterboard business will be included in the venture.
The negotiations include Boral receiving $US575 million from USG to equalise the two groups contribution to the venture, with Boral set to receive $US599 million up front.
The venture will have manufacturing and distribution spread across 12 countries.
The decision to form the venture follows ongoing rationalisation of Boral’s operations, which included taking full control of a gypsum venture over the past few years.
The venture will gain access to technology of USG, a large US gypsum and plasterboard group.
“The transaction is a major step forward for Boral and our vision is to create a world-leading interior linings business in Asia, Australasia and the Middle East,” said Boral’s CEO, Mike Kane.
“The joint venture strategically aligns with Boral’s goal to grow earnings from Asia over the longer-term by effectively leveraging our extensive distribution position with complementary building products and markets.
"In addition to equipping the Gypsum division for long-term accelerated growth in Asia, the joint venture with USG creates a strong competitive advantage for the Australian plasterboard business through the application of game-changing technologies, significantly strengthens Boral’s financial position and provides greater strategic flexibility to the Boral group.
"This joint venture will be value accretive for our shareholders,” he said.
There was no mention of that other great business cliche in deals like this – that the deal will be "earings accretive".
That’s because the deal will slice $14 million off Boral’s year to June 2014 net profit, Boral said in yesterday’s statement.
The venture has an asset value of $US1.6 billion which is comprised of Boral assets totalling $A1.35 billion and $US250 million of assets and intellectual property from USG.
Boral said most of the funds received will be used to reduce debt, although it flagged some "capital management initiatives" depending on market conditions.
The $US500 million will reduce gearing to 2% from 30%, Boral said.
Boral said the Joint Venture "is anticipated to benefit from significant synergies, which will ramp up over time and are expected to exceed US$50 million per annum within three years of the new technologies being rolled out.
"Synergies will come from manufacturing and freight cost savings and will also include revenue enhancements generated by a superior product offering and complementary products that will be sold through existing sales channels."
The deal is expected to be completed by January 31, 2014, but will need FIRB approval in Australia (and perhaps approvals in some other countries, although they were not mentioned yesterday).
