Adelaide Brighton ‘open to potential merger’ with largest shareholder

Navigating Australia's housing downturn is ‘immediate priority’ for construction materials supplier Adelaide Brighton.

About a third of its business has exposure to residential and multi residential markets but forecasting data remains murky. Picture: Zak Simmonds

Construction materials supplier Adelaide Brighton is open to a potential merger with its largest shareholder, Melbourne’s billionaire Barro family, but says navigating Australia’s housing downturn remains its immediate priority.

Barro Group holds a 43 per cent stake in Adelaide Brighton and its figurehead, Raymond Barro, assumed the chairman’s role a year ago. His older sister Rhonda Barro also sits on the cement company’s board, along with Geoff Tarrant who also represents the Barro Group.

Adelaide Brighton said a deal still made sense.

“We have been clear in the past we do believe there are likely synergies through a combination of Barro assets in concrete, cement and aggregates with the Adelaide Brighton assets,” Adelaide Brighton deputy chairman Zlatko Todorcevski told shareholders at its annual general meeting. “However, at this time there are no active conversations and I think it’s probably best left at that.”

The Barro family has been steadily lifting its control over the $1.7bn manufacturer via creep provisions, with its 43 per cent stake raising talk the Barro Group could either launch a takeover of Adelaide Brighton or Barro itself could be swallowed.

“I think going into the future, I'm sure the company will look at Barro and Barro will look at the company like we do all other investments,” Mr Barro told The Australian.

Investors quizzed both the company and Mr Barro about their intentions, but the chairman said he was unaware of any push by remaining shareholders for a deal to proceed.

“I can’t speak for the other investors. They may be enthusiastic, they may not be. I don’t know. No one has rung up and said ‘do something’,” Mr Barro said.

The competition regulator in January found no evidence a stake held by the Barro family in Adelaide Brighton had influenced competition between the companies in Melbourne, Brisbane and Townsville.

Adelaide Brighton said the immediate focus was to get through an uncertain time for the Australian economy.

Trading in March and April was in line with expectations, but it conceded there was little visibility on the size of housing approval declines.

“Certainly there’s a high degree of uncertainty as to where things are headed,” chief executive Nick Miller said. “There is clarity in our pipeline out until August or September but beyond that the replenishment of that pipeline is unknown.”

About a third of its business has exposure to residential and multi-residential markets but forecasting data remains murky. The Housing Industry Association expects 153,000 housing starts in 2020, falling to 136,000 in 2021, but other estimates see a decline to 80,000 starts next year.

Government stimulus projects for infrastructure and housing might play a part.

“The unknown is what levers do government have available to call on to stimulate the housing market given interest rates are at a very low level and immigration levels appear to be very low for the foreseeable future,” Mr Miller said. “So infrastructure spending and getting shovel ready projects to market early is a focus.”

Australia’s biggest cement company dumped its full-year earnings guidance over coronavirus volatility on April 2, withdrawing its February expectation of a 10 per cent fall in 2020 profit.

Adelaide Brighton's underlying net profit after tax for the December year fell to $123m from $191m a year earlier with construction materials markets softening in NSW and Queensland because of an oversupply of apartments and falling consumer confidence.

The company — which supplies products to construction, infrastructure and mining projects throughout Australia — plans to keep high stockpiles of raw materials over concern the coronavirus might cut access to imported supplies.

A cost cutting program targeting in excess of $30m in gross 2020 savings will continue with the company also reviewing its capital spending plans.

Shares in Adelaide Brighton, which voted through a name change at its AGM to Adbri, closed up 7.5 per cent at $2.58 on Tuesday.