John Wylie labels Seven Group’s $8bn bid for Boral as ‘opportunistic’
John Wylie’s Tanarra Capital has lashed the Kerry Stokes-controlled Seven Group for an opportunistic $8bn bid for Boral.
John Wylie’s Tanarra Capital has lashed the Kerry Stokes-controlled Seven Group for an opportunistic $8bn bid for Boral and wants the construction materials giant to fast-track plans to secure a new chairman amid a challenge to its independence.
Boral on Tuesday rejected a $6.50 a share takeover tilt from Seven, arguing it undervalued the company with the deal pitched at a nil premium to the Sydney-based company’s Monday closing price.
The move by Mr Stokes has sparked fresh unrest among Boral’s suite of high-profile shareholders, including Tanarra, concerned the low-ball bid will effectively hand control to Seven as it looks to boost its stake to at least 30 per cent from 23 per cent.
“We think it’s a highly opportunistic, nil premium bid and we think the company is right to reject it,” Tanarra chief executive John Wylie told The Australian.
“If they succeed in their objective of getting to 30 per cent, they’ll have effective control of the company and we think at the very least there should be a premium for effective control.”
Mr Stokes’ Seven Group conglomerate — which includes the Westrac and Coates Hire businesses — aims to strengthen its grip on the company under CEO Ryan Stokes given that creep provisions prevent it from buying more shares before October without making a full takeover offer.
“They’re playing the long game and it’s an opportunistic attempt to move into a position of effective control of the company,” Mr Wylie said.
“They’ve put an effective floor under the share price now and in a way Ryan as a director of the company it’s a public statement of the inherent value in the company.
“So it’s a pointer there’s a lot more value in the company, otherwise they wouldn’t be trying to get more at $6.50.”
Boral is also working through the process of finding a new chair with incumbent Kathryn Fagg to depart this year.
Tanarra now wants that process accelerated.
“We think it’s important that the company accelerate the plans for its chair transition now. It’s important that any company facing a takeover bid articulates its future as an independent company so shareholders can evaluate that and Kathryn Fagg has done a very good job in many respects,” Mr Wylie said.
“But Kathryn said she would be retiring after the last AGM, so it’s important and appropriate now for the company to clarify what the future board leadership is going to be before effective control of the company can pass.”
Seven Group is also expected to press for a second director’s role on the Boral board should it reach an interim target of owning 30 per cent of the construction materials giant.
Mr Stokes has a board seat but Seven’s CFO Richard Richards was forced to relinquish his role in October 2020 to appease shareholder and proxy adviser concerns it would have outsized influence on Boral compared with its then 19.9 per cent stake.
“Subject to the size of the interest in Boral shares held by Seven Group following completion of the offer, Seven would review its representation on the Boral board and may seek additional representation that is reasonably proportionate to its interest in Boral shares,” Seven said in its bidder’s statement lodged on Monday night.
Shareholders Tanarra, Perpetual and proxy advisers had complained about the disproportionate nature of Seven’s influence compared to its shareholding and lack of transparency over contractual arrangements between the two companies.
The loss of a director role diluted Seven’s influence at Boral and represented a rare misstep by the conglomerate backed by its billionaire backer which pounced on Boral’s weak share price last year to build its stake.
Morgan Stanley analysts believe the Seven bid will not be well supported by investors.
“As it stands today, with the bid in line with the current share price, we expect limited take-up,” the bank’s analysts said in a research note.
They add that the offer would put a floor under the Boral share price and that the stock would trade ahead of the $6.50 bid in the near term.
The offer equated to 22 times forecast 2022 net profit and eight times earnings before interest, tax, depreciation and amortisation, the analysts said.
Barrenjoey Capital Partners is advising Seven Group with Allens its legal adviser.
Boral had earlier hired Bank of America to explore options for its US-based operations and has the Royal Bank of Canada on board for a review of its US-based fly ash division.
Morgan Stanley analysts believe that the company will have benefits from the anticipated sale of its assets in the US.
“In our view, a takeover at today’s $6.50 bid price fails to fully encompass the upside from these factors as well as a suitable takeover premium.
“We expect investors to view the bid as opportunistic.”
Boral shares rose 3.4 per cent to $6.72.
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