Boral sells North American building products arm to Westlake for $2.9bn

Boral is rejecting accusations it fast-tracked the sale of its US business as it fights a potential takeover by Kerry Stokes’ Seven.

Boral CEO Zlatko Todorcevski. Picture: Jane Dempster

Boral’s $US2.15bn ($2.9bn) sale of its US building products business has ratcheted up tensions with its biggest shareholder after Kerry Stokes’ Seven Group said the unit had been sold for a loss and rushed through amid its takeover offer.

The division was sold to Houston-based manufacturer Westlake Chemical Corporation on Monday after several bids were reviewed over the weekend with Boral noting the price outstripped a $US1.8bn-$US2bn valuation range detailed in an independent expert‘s report by Grant Samuel.

But Seven, which launched a low-ball $6.50 a share bid for Boral on May 10, said it was disappointed with the sale. It claimed the construction materials giant should have received a bigger payday given strong US trading conditions.

“The US building products business has been sold for a loss. This business has been outperforming while the Australian business is underperforming. This seems like a rushed sale process in response to our offer. Our view is that Boral should have secured more,” said a spokeswoman for Seven Group which owns 24 per cent of Boral.

Boral rejected the accusations it had been fast-tracked amid the Seven takeover attempt and said it was a good result for shareholders.

“There was an extensive market testing process with strong interest from high calibre buyers,” a Boral spokesman said.

“The market testing process for our North American building products operations was announced in October 2020 – well before the Seven Group offer was launched on 10 May 2021.”

John Wylie’s Tanarra Capital, a substantial Boral investor, said the deal beat market expectations while broker Jefferies said it was higher than its $US1.58bn valuation.

“Our general view is that it was a good price for the assets. They took advantage of favourable market conditions and got a good price,” Mr Wylie told The Australian.

“It was certainly higher than most analyst numbers.”

Boral in May rejected a $6.50 a share takeover tilt from Seven Group, arguing it undervalued the company. The conglomerate has been pushing for an extra seat on the board, a move which until now has been rebuffed by Boral, with its offer set to close on 30 June.

The US deal could lure another bidder to consider a takeover tilt and may spark Seven Group to lift its own offer, Jefferies analyst Simon Thackray said.

“With the optics of the sale of building products in place, this opens a pathway for Seven Group to revise their offer or another potential bidder to enter discussions with Boral,” Mr Thackray said.

Seven also blasted changes made to employment incentives for chief executive Zlatko Todorcevski and chief finance and strategy officer Tino La Spina on Monday.

“We are also concerned that Boral’s Board has seemingly given up the ability to hold the CEO and CFSO accountable for performance and results, with the sale announced alongside a guarantee of their employment and long-term incentives,” Seven Group’s spokeswoman said.

“This reinforces our view that this is in response to Seven Group‘s takeover. Shareholders should be concerned by this.”

Boral later shot back at its biggest shareholder’s criticism, signalling deteriorating relations between the two sides.

“Boral’s independent directors have strengthened employment arrangements for Boral’s CEO and CFSO and they remain fully accountable for completing the key initiatives that are underway during what is a critical transformation period for the company. The long term incentives remain fully performance tested which strongly aligns with shareholders,” Boral said in a statement on Monday.

Mr Todorcevski has been working to restructure the business after several years of profit downgrades and underperformance under previous chief executive Mike Kane.

The company sold its half share of the USG Boral plasterboard venture for $1.43bn in October, placating high profile shareholders including Seven and Tanarra which had been agitating for asset sales.

Boral indicated it would return some of the cash to shareholders along with trimming debt and considering funds needed for reinvestment.

“The sale will generate further significant surplus capital once the transaction closes. In accordance with Boral’s financial framework, after optimising Boral’s net debt position and allowing for reinvestment needs, we expect a significant surplus to be available for distribution to Boral’s shareholders,” Mr Todorcevski said.

“The board will determine the most appropriate way to return surplus capital to shareholders taking into account the availability of franking credits, the relative share price and the preferences of Boral shareholders as a whole.”

Boral’s net debt will reduce to $1.3bn from $1.5bn, in line with its target net debt range of 2 to 2.5 times Ebitda, resulting in net surplus capital of $500m in addition to the $US. 215bn proceeds from the transaction.

A review of its US flyash business remains ongoing with Boral stating on Monday it was still weighing a potential joint venture, strategic alliance, sale a third party or retaining the business.

Boral rose 1.3 per cent to $6.87.