Boral in $US441m deal to buy back USG Boral business
Boral shares have slumped after it unveiled a $650m deal and gave a downbeat assessment of the outlook.
Construction materials supplier Boral has unveiled a long awaited $US441 million ($658m) deal with Germany’s Knauf to resume full ownership of its local USG Boral business along with the creation of a new Asian plasterboard joint venture.
But the news came amid a downbeat earnings outlook for 2020.
Shares in Boral nosedived after the announcement, falling 20.56 per cent to $3.94.
The transaction is split two ways, with Boral paying $US200m for the remaining 50 per cent stake of USG Boral and $US241m for the half share of the Asian venture.
Boral’s $US335m direct funding requirement will be met through debt and proceeds from recent divestments. Investment grade credit ratings are expected to be maintained.
Analysts had raised concerns earlier this year that the Sydney-based company may have been forced into an equity raising to fund the deal.
While the market may be relieved to see a deal concluded, conditions remain tough for the manufacturer in its existing markets. Boral said net profit after tax would be 5 per cent to 15 per cent lower in 2020 on last year due to lower earnings in its Australian business and USG Boral.
The first leg of the deal will see Boral snaring the remaining 50 per cent of the USG Boral business in Australia and New Zealand, although Knauf has a call option to buy that half stake within five years.
“The transaction is in line with Boral’s strategy to invest in low capital-intensive, high growth businesses,” Boral chief executive Mike Kane said.
“Returning to full ownership of our plasterboard business in Australia and New Zealand gives Boral increased exposure to a well-positioned, high performing business that generates strong cash flows, recognising that Knauf may choose to exercise its call option within five years.”
The USG Boral joint venture will buy Knauf Asia Plasterboard, including China and South-East Asia for $US532.5m and sell the Middle East unit to Knauf for $US50m.
Boral and Knauf — which will both own 50 per cent stake in the expanded USG Boral Asia joint venture — will both tip in $US135m each to fund the balance, with the joint venture providing the $US262m balance.
In April Knauf completed its $US7 billion buyout of USG Corporation, Boral’s plasterboard partner in Asia Pacific, which triggered a range of options with a new Asian joint venture. A local buyout deal firmed as the most likely path following several months of due diligence.
The transaction came amid a 7 per cent fall in Boral’s annual net profit to $440m as a decline in Australian residential housing and mixed earnings from its North American business weighed on its performance.
Earnings before interest and tax fell 4 per cent to $660m, ahead of $645m consensus while revenue of $5.8 billion was in line with expectations.
Boral also revealed a $174m impairment of its Meridian Brick joint venture in the US.
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