James Hardie unveils $14bn US deal, and shrugs off concerns over timing

James Hardie boss Aaron Erter has shrugged off concerns over the timing of its massive $14bn Azek deal, saying the companies perform well ‘no matter what’s going on’.

James Hardie says there’s a huge opportunity in the US as homeowners modernise their cladding and outdoor areas.

James Hardie chief executive Aaron Erter has brushed off concerns about the timing of the company’s almost $14bn acquisition of US outdoor building products group Azek, saying the two companies have a history of performing “no matter what’s going on’’.

Under the deal, Azek shareholders will receive stock and cash worth $US56.88, with the transaction valued at $US8.75bn ($13.93bn) based on the $46.80 closing price of James Hardie’s shares of March 21.

James Hardie shares plummeted on the news on Monday, however, falling more than 10 per cent to $41.97. James Hardie was valued at $21.1bn based on Friday’s closing price.

Following the completion of the deal, James Hardie shareholders will own 74 per cent of the merged entity, with 26 per cent held by Azek shareholders.

Chicago-based Azek manufactures home building materials under the TimberTech and Azek Exteriors brands, with a focus on decking, siding and trim products.

James Hardie Industries chair Anne Lloyd and CEO Aaron Erter.

Mr Erter said the product suites of the two companies were complementary, and there would be large synergies across the two businesses, worth about $US350m in earnings per year.

“We expect this transaction to unlock significant synergy benefits, including $US125m of clear and credible cost synergies and at least $US225m of tangible commercial synergies,’’ he said.

“Together, these synergies represent at least $US350m of annual adjusted EBITDA over and above our estimate of the combined adjusted EBITDA of our two companies operating independently.

“The combined business will be an engine of tremendous cash flow generation, which we anticipate will drive rapid deleveraging post-closing and provide substantial capacity to fund not only organic investment but also capital return.’’

The company said the full impact of the cost and commercial synergies was expected to be realised over three and five years respectively.

“The commercial synergies are underpinned by significant wallet share opportunities with each company’s existing contractor network and customer base, as well as through enhanced offerings and a national footprint across North America,’’ James Hardie said.

“As a result, the company believes there could be meaningful upside to the commercial synergies.’’

James Hardie said it expected the deal to be earnings per share accretive in the first full fiscal year following the closure of the deal, “with cash earnings per share growth accelerating in the years ahead’’.

“The return profile of this transaction is attractive as well, as we expect to return our cost of capital over the medium-term and drive meaningful acceleration in our return on investment as we drive growth and recognise synergies,’’ Mr Erter said.

When asked about the timing of the deal, in an environment dominated by uncertainty both on the political and macroeconomic fronts, Mr Erter said it was not a concern, and potentially even a positive.

“When you ask, ‘why now?’, it’s very important to restate … James Hardie and Azek have a history of outperforming the markets, no matter what’s going on,’’ Mr Erter said.

“We expect that to continue.’’

Mr Erter said in his opinion, “this is the right time”.

“If you think about a little bit of a down market, we’re going to focus our efforts on integration along with driving the core business, and as the market recovers we’ll be in that much better a position to accelerate.’’

Granny pods made from some of James Hardie products. Picture: Supplied

Mr Erter said there was a huge opportunity for James Hardie to be involved in a “substantial material conversion opportunity’’ in North America, as homeowners converted wood and vinyl siding on their homes to fibre cement products, which were manufactured by James Hardie.

Mr Erter said renovations including siding and decking were often done at the same time, with the combined companies now able to supply a complete product suite for such projects.

“Together, James Hardie and Azek provide a full-wrap and complementary solution for the exterior of the home, offering beautiful, resilient, fire, pest and weather resistant products that are easy to install with reduced maintenance and lower life cycle costs,’’ the company said.

“The combination will allow James Hardie to deliver significant benefits to all of its partners throughout the customer value chain.’’

Azek chief executive Jesse Singh said his company had a strong economic moat, with business in the field being won “contractor by contractor”, with Azek having strong relationships in this area.

The companies also had “extremely differentiated products which solve problems in ways other people can’t’’.

Mr Erter said the combined companies would pursue a total addressable market “more than twice the size of ours today’’.

“We will be one of the fastest-growing, most profitable businesses in building products,’’ Mr Erter said.

“With 70 per cent exposure to repair and remodel, and diverse offerings across attractive categories such as siding, other exteriors, decking, railing and accessories, the combined company will be better positioned to capitalise on recovery, and outperform through any market backdrop.’’

James Hardie said Azek had averaged more than 15 per cent net sales growth over the past seven years.

Following the closure of the deal, the combined entities are expected to generate more than $US1bn in annual free cash flow, which James Hardie said would be used to support organic growth, pay down debt, and fund share buybacks.

James Hardie products. Picture: Supplied

James Hardie said it expected to buy back up to $US500m of its own shares in the 12 months following the deal’s close.

“The combined business is also well positioned for a valuation uplift as a leading growth platform in building products with a strengthened financial profile, and greater global institutional investor relevance through two major stock exchange listings,’’ the company said.

Following the deal, James Hardie shares will be listed on both the New York Stock Exchange and the Australian Securities Exchange.

The deal has been unanimously recommended by the boards of both companies and is subject to regulatory approvals and Azek shareholder approval. It is expected to close in the second half of calendar 2025.

James Hardie will fund the cash element of the deal with new debt.

Azek shareholders will receive $US26.45 in cash and 1.0340 shares of James Hardie for each Azek share they own.