Boral poised for US acquisition, rights issue planned

A big US deal had long been a plan of Boral CEO Mike Kane. Pic: Hollie Adams

Boral expects to double the size of its US division with the $3.5 billion purchase of Utah-based construction materials manufacturer Headwaters,.

The Salt Lake City-based business has a major presence in lightweight building products such as fly ash.

Boral (BLD), which currently has a market value of $4.54bn, will launch a $1.6bn rights issue and a $450m placement to new and existing share holders.

It says the deal will create $100m in synergies for the company and is earnings per share accretive.

The purchase, unanimously recommended by Headwaters directors, is expected to close in mid-2017.

Long flagged by Boral chief executive Mike Kane, the deal follows the company’s recent US bricks joint venture with Forterra, which will see Boral depart the bricks business.

This mirrors moves in Australia where the company got out of the brick market with the $133.9m sale of its 40 per cent share of a joint venture with CSR.

Mr Kane has long been aiming for a big US acquisition to put Boral firmly on the map in the US.

“While the acquisition of Headwaters significantly transforms Boral USA, it is also highly transformative for Boral as a group,” he said.

“The businesses of Headwaters are highly complementary with Boral’s existing US operations — in fly ash, roofing, stone and light building products. And it’s this strong alignment that means we can deliver substantial value through synergies.”

Boral, which most recently traded at $6.15, will raise equity at $4.80 per share through a $450m placement and through a fully underwritten 1 for 2.22 pro rata accelerated renounceable entitlement offer.

The takeover represents a 34 per cent premium on the target’s one-month average weighted share price of US$18.16, in a deal that will see Boral double its US division revenue and capitalise on anticipated additional infrastructure spending in the United States following Donald Trump’s election.

Mr Trump has said he would prioritize plans for $US1 trillion in infrastructure investment over 10 years, promising to “rebuild our highways, bridges, tunnels, airports, schools, hospitals.” Some industry experts have raised concerns over the proposal, saying it will rely on private financing that is likely to fall far short of that level.

Boral’s move to a US acquisition was flagged by The Australian last month to fill an earnings gap and get front and centre with major US hardware stores including Home Depot and Lowes.

The Australian reported that Mr Kane was moving swiftly to get his acquisition bedded down while the market was still expanding, which meant he was hoping to secure a deal within six months.

Boral has been upbeat on the outlook for its US business for some time, because of forecast growth in home building.

The US housing market, which was hit hard by the recession, has been rebounding.

Both housing starts and permits for new construction rose in October. Housing starts increased at the highest pace since August 2007.

Barclays said that matched its expectations of a steady improvement in the US housing market over the coming two years.

There is uncertainty in the market too, though, as expectations rise for a December interest-rate increase that could damp demand.

Headwaters also manufactures stone, roofing and siding products for building markets. New residential buildings account for roughly one-third of its revenue, while infrastructure makes up about 13 per cent.

“Headwaters has been rigorously assessed and with its highly complementary portfolio of assets, which are strategically aligned with a number of Boral’s existing U.S. businesses, this is a highly compelling acquisition for Boral,” said Boral chairman Brian Clark.

Kirk Benson, Chairman and CEO of Headwaters, said the tie-up would “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.”

On November 1, Headwaters reported a 9 per cent rise in annual revenue, to $US974.8 million, although it said net income slumped roughly 60 per cent mainly because of tax adjustments. It projected higher sales of fly-ash and building products in the year ahead and said initiatives to improve efficiency would help widen earnings margins.

Among Headwaters products, fly ash is a fine grey powder consisting mostly of glassy particles that are a byproduct in coal-fired power stations.

With Dow Jones