Boral (BLD) will double the size of its US business after it agreed to buy US firm Headwaters for a total of $US2.6 billion ($A3.5 billion) – $US1.8 billion for the company, plus around $US800 million in debt.
The purchase offer of $US24.25 a share, which is subject to the approval of Headwaters shareholders and regulatory approval, represents a 20% premium on Friday’s closing price of $US20.21 per Headwaters share. It is also a 34% premium to Headwater’s share price for the past month.
The Australian company will fund the acquisition via a $A450 million institutional placement and a fully-underwritten $A1.6 billion 1-for-2.22 pro-rata rights issue, with the balance to be funded using existing cash ($US485 million) and a debt bridge facility.
Chief executive Mike Kane said the deal would provide cost savings of around $US100 million per annum within four years of closing.
"The businesses of Headwaters are highly complementary with Boral’s existing US operations – in fly ash, roofing, stone and light building products," Mr Kane said in the statement.
Headwaters chief executive and chairman Kirk Benson said in the statement the combined group would be one of the “leading manufacturers and distributors of building products and construction materials for infrastructure, new residential, repair and remodel, commercial and institutional construction”.
Boral shares closed at $6.15 on Friday and trading was halted yesterday to allow the institutional issue to happen. The issue will be done at $4.80 a share.
The deal will boost Boral’s footprint in the US, at a time when economic and housing industry statistics have been solid and as Wall Street rallies on the perception Mr Trump’s policies will reinvigorate spending on infrastructure, boosting growth and inflation in America in the coming months and years.
A longtime player in the US homebuilding sector, Boral said it was a “strategically compelling acquisition … better positioning the Group to deliver more sustainable growth and above cost of capital returns through market cycles.”
Boral said the highly complementary US businesses would have combined revenue of $US1.8 billion, more than double that of Boral USA. It would also see the significant expansion Of Boral’s US fly ash business, which will do well in any infrastructure in the USA, plus the accelerated development of Boral’s light building products platform.
Boral earned nearly 24% of its revenue from the US in the 2015-16 financial year. That will rise to around 38% with this deal, and its Australian revenue will fall to 51% from 67%. You add the gypsum joint venture with US Gypsum, Boral gets roughly half its business from US sources.
Mike Kane, Boral’s chief executive (and an American), said:
"It’s the synergy opportunities that help make this a highly compelling acquisition, and I am confident that we have the right team in place to bring together the two portfolios, drive integration and deliver strong value creation for Boral’s shareholders."
The company expects the deal to be earnings per share accretive on a pro-forma basis in the current financial year, and to generate approximately $US100 million per annum in synergies within four years of the transaction close. Headwaters CEO Kirk Benson said in the statement.
“We are looking forward to working with Boral to ensure a smooth transaction for our stakeholders, as we create one of the leading manufacturers and distributors of building products and construction materials for infrastructure, new residential, repair and remodel, commercial and institutional construction."
Boral’s existing exposure to the US cost it dearly in the aftermath of the sub-prime mortgage and financial crises a decade ago, but the company under Mr Kane has hacked and sold its way out of that into better times, especially thanks to the Australian housing and apartment construction boom of the last two years.
"The acquisition price in our view is fair but not cheap," Royal Bank of Canada analyst Andrew Scott said in a note to clients yesterday."We remain conscious that there is a mix of assets and attractiveness across the Headwaters portfolio."
But there wasn’t any mention of a shareholder meeting to discuss this deal. The purchase is valued at $A3.5 billion. At Friday’s closing price Boral was valued at $4.57 billion. Surely shareholders deserve a meeting to discuss this massive deal. Failing any move by Boral, ASIC should step in an order one.
If the deal goes bad, Boral certainly won’t be in any haste to call a special meeting to discuss any problems.
