Boral offloads USG stake, mulls US sales

Boral to sell Australian plasterboard venture to Knauf for $1.43bn and field offers for its US building products business.

Boral CEO Zlatko Todorcevski. Picture: Jane Dempster

Boral will consider offloading its US building products business after early interest from buyers and will sell its half share of the USG Boral plasterboard venture for $1.43bn, placating high profile shareholders agitating for asset sales.

The construction materials supplier wrapped up a strategic review with its partner in USG Boral, Germany’s Knauf, buying out Boral’s 50 per cent share. The deal hands Boral profit before tax of $540m and was higher than the market expected, allowing chief executive Zlatko Todorcevski to cut debt and ease concerns it may be forced into a capital raising.

“We were pretty impressed with the price they got,” said Sandon Capital portfolio manager Gabriel Radzyminski, which holds Boral shares and valued its stake at $800m to $1bn. “It also gives the new CEO the credibility to take his time now to sell any remaining assets.”

Several prominent Boral investors held talks with Mr Todorcevski about cashing in on its USG stake after a plasterboard venture with Knauf was canned in April amid spending cuts and construction demand tanking due to the COVID-19 pandemic.

Shareholders including the Kerry Stokes-controlled Seven Group have also been pushing for it to offload its underperforming US division. Securing the USG deal and signalling it was open in time to selling part of its North American arm was a canny move, Sandon said, while also keeping the door ajar to retaining assets should it rekindle the business following the US election.

“It gives Zlatko the ability to take his time to maximise the remaining asset sales and also puts beyond any doubt the fact the company is strong and well capitalised. It means any other asset sales can be negotiated from a position of strength rather than weakness,” Mr Radzyminski said.

Boral has fielded interest from suitors but not received formal offers and Mr Todorcevski cautioned it would not engage in a fire-sale of its assets.

“In terms of North America we‘re not committed to selling. It’s a really good business and we see a lot of upside and we’ve had inbound inquiries both directly and indirectly. But we have a value expectation there and if potential buyers don’t meet that expectation, I think it’s in the best interests of shareholders to hold those assets and deliver the opportunities we see,” Mr Todorcevski said.

“What we don’t want to do is have people pick the eyes out of that portfolio and we‘re left with some of the less attractive building product segments. That is something we’re very conscious about.”

Boral will also look at new supply options for its fly-ash business, championed by former boss Mike Kane, due to the decline of coal-fired power plants in the US. It remains open to a potential divestment of fly-ash in addition to building products but said one buyer was unlikely to scoop up both.

“If I look at the US business in totality, there aren‘t too many parties that can take the US building products business and fly-ash, so I think more than likely any deal with building products will be separate from fly-ash. And then when I look at building products as a combination of different businesses, there are a number of parties who it would make sense to take the building products portfolio. But I think potentially there would be better value outcomes from a vast pool of interest for individual segments.”

The lead-up to Boral’s AGM was filled with tension after veteran investment banker John Wylie and Perpetual demanded chairman Kathryn Fagg publicly release any secret deals done with the company’s biggest shareholder Seven Group that saw its chief executive Ryan Stokes and finance boss Richard Richards invited on to the Boral board.

Boral initially defended its decision with a six-page rebuttal before capitulating the next day to shareholder pressure with Ms Fagg to quit as chairman in 2021 and Seven withdrawing one of its board seat roles.

Still, some 23 per cent of proxy votes were cast against the election of Ryan Stokes indicating some investors remain cautious about the influence of Seven which now holds a 19.9 per cent stake in Boral.

Boral also said first quarter group revenue had fallen 9 per cent while earnings before interest and tax had declined 5 per cent on the same period a year earlier.

“The first quarter of the 2021 financial year has seen fewer disruptions in most businesses relative to the previous six months, which is encouraging, but it is still not business as usual. We’re not seeing consistency in activity levels from month to month, which reflects ongoing uncertainty and challenges,” Boral said.

Boral shares rose 0.2 per cent to $4.74 against a fall of 1.7 per cent in the broader market.