The huge cost overruns on its Kwinana project in WA have exposed Adelaide-based cement giant Adbri (ASX:ABC) to a mop-up offer from the controlling Barro family and CRH of Ireland.
The two revealed a $2.1 billion offer on Monday morning via the now usual non-binding offer to acquire 100% of Adbri at $3.20 a piece.
That's higher than the $2.27 the shares closed at last Friday.
Adbri told the ASX on Monday that the price has been recommended by an independent board committee.
Under the deal, CRH would partner with the Barro interests, which own 43% of Adbri.
Adbri said CRH had been given due diligence until February 28. Adbri said there was "no certainty that the proposal will lead to a binding proposal for consideration by Adbri shareholders," but the company has demonstrated its interest by entering into a process and exclusivity deed with CRH and Barro today to "progress a potential transaction."
As two of Adbri's directors are Barro family members – including Adbri chair Raymond Barro – the company has established an Independent Board Committee (IBC) chaired by Samantha Hogg to consider the proposal.
The Barros and Geoff Tarrant – another Barro representative – have recused themselves from the Adbri board while the proposal is under consideration.
Today, the board said it intended to recommend the offer to shareholders.
"Subject to agreement of a binding scheme implementation agreement on terms acceptable to the parties, the intention of the Independent Board Committee is to unanimously recommend the proposal, in the absence of a superior proposal and subject to an independent expert concluding that the scheme of arrangement is fair and reasonable and in the best interests of Adbri shareholders," Adbri said.
The consortium's offer is the "best and final price" too, in the absence of a superior and competing proposal which means they must be confident of winning over shareholders; after all, the Barros own 42.7%, CRH owns 4.6% via a financial derivative (cash-settled swaps) so the deal is all but done.
The shares jumped more than 32% to $3.10 on Monday.
In a trading update on Friday, Adbri indicated it had done better than expected (the company has a calendar financial year).
"During the second half of the year, Adbri has continued to experience strong demand for its products across key markets. The Company expects to record full-year underlying EBITDA within the range of $310 – $315 million, moderately exceeding the outlook provided at the half-year results in August.
(That would be $20 to $25 million above the $290.2 million of EBITDA reported for 2022).
"Capital expenditure for 2023 is expected to be within the range of $310 – $320 million, lower than the $330 – $350 million estimate provided at the half-year results.
Adbri has been financially weakened by the continuing cost overruns that have doubled the estimated cost of its ambitious plans for its Kwinana operations near Perth.
The project is aimed at giving the company what it says will be "a modern state-of-the-art facility that consolidates Adbri’s two existing cement production sites. It is a strategic investment that will strengthen Adbri’s long-standing position as a sustainable, low-cost cement supplier in Western Australia."
Adbri had announced the Kwinana upgrade in 2020 with a proposed price tag of $199 million.
But the project has since been hit with a series of overruns caused by labor shortages, supply chain issues, and design problems.
In December of last year, Adbri said it had spent $94 million and would need another $170 million to $200 million to finish the build.
But in April of this year, the total project cost was estimated at $385-420 million. According to the company, this has been driven by the escalating cost of construction, constraints on available labor, and supply chain challenges.
That cost estimate was confirmed in a trading update last Friday by Adbri which said that as of November 30, $240 million had been invested in the project.
Start-up for the expansion and consolidation work at Kwinana was originally estimated for 2023. Now it's the June quarter of 2024 and under new owners.
CRH is a global giant, based in Ireland, but with its primary stock market listing moving to the New York Stock Exchange from late September this year.
