Boral rejects $8bn tilt by Kerry Stokes’ Seven Group

Boral recommends shareholders reject the ‘opportunistic’ bid by the Stokes-controlled Seven Group to grab greater exposure to its building materials business.

Seven Group Holdings chairman Kerry Stokes. Picture: AAP

The Kerry Stokes-controlled Seven Group has made a $8bn bid for Boral as it seeks to grab greater exposure to its building materials business across Australia and the US.

Seven, majority owned by the billionaire, late on Monday sprung a $6.50 a share offer for the entire company in a blockbuster deal that values the company at just under $8bn.

However Boral on Tuesday rejected the offer as opportunistic and said it undervalued the company.

It said a committee of directors had unanimously recommended shareholders reject the offer by taking no action. “Boral management remain committed to the sompany’s strategic goals including the transformation targets set across the group and the ongoing process in relation to its North American portfolio,” Boral told the ASX.

Mr Stokes’ conglomerate - which includes the Westrac and Coates Hire businesses - already owns a 23 per cent stake in Boral. The off-market tilt aims to strengthen its grip on the company given creep provisions prevent it from buying more shares before October without making a full takeover offer.

The offer was unlikely to tempt Boral chairman Kathryn Fagg given it is pitched at a nil premium to Boral’s last closing price on Monday. Seven conceded it would be content owning about 30 per cent of Boral if existing investors do not want to sell their shares in the company.

A deal would be financed through a $5.5bn loan bridge facility with funding from ANZ, Barclays and Westpac along with Seven Group’s $538m corporate loan facility and $251m from existing cash reserves. Seven hired Barrenjoey as its financial adviser with law firm Allens also on hand.

The $6.50 per share offer represents a premium of 54c to the Boral share price of $5.96 representing the average purchase price of the shares it acquired before its recent creep transaction on April 8.

It’s 18 per cent higher than the last closing price of Boral shares at $5.49 on March 31, the trading day prior to Boral’s on market share buyback and a 22 per cent premium to Boral’s six-month volume weighted average price of $5.32.

“In making the offer, Seven is seeking to increase its interest in Boral and would be satisfied for the offer to result in it holding a total interest of around 30 per cent of Boral. The offer provides Boral shareholders with the opportunity to sell their shares at a premium to recent trading performance,” Seven said in a statement.

Seven held a 22.98 per cent stake in the Sydney company but Boral’s ongoing share buyback lifted Seven’s ownership to 23.18 per cent on Monday.

A company cannot own more than 20 per cent of a target without launching a takeover under Australian laws. However, under “creep” laws it can continue to boost its ownership by up to 3 per cent every six months without embarking on a bid.

After amassing an initial 10 per cent stake in Boral a year ago, Seven has profited from its bet on Boral which was launched after a series of damaging profit downgrades which contributed to the early exit of former boss Mike Kane.

Mr Kane was handed a $2m golden handshake even as the company dealt with the financial fallout of an accounting scandal that hit its US windows business.

But under his successor, Zlatko Todorcevski, the company completed a review concluding it would look at offloading its US building products business after early interest from buyers. It also sold its half share of the USG Boral plasterboard venture for $1.43bn, placating high profile shareholders including Seven agitating for asset sales.

Seven noted in its bidders statement that it was supportive of Boral’s decisions and proposed strategy following the review.

The USG deal handed Boral profit before tax of $540m and was higher than the market expected, allowing Mr Todorcevski to cut debt and ease concerns it may be forced into a capital raising.

Seven chief executive Ryan Stokes said he would recuse himself from all Boral board and committee meetings given his role as a director during the offer period.

The Seven boss has signalled for the past few years a focus on potential deals in infrastructure, mining services and energy where it sees strong growth opportunities spanning both the east and west coast.

Seven has bought stakes in listed companies in the past as investments, including Beach Energy, Estia, Telstra and Woodside Petroleum, among others.

The conglomerate owns a diverse range of Kerry Stokes’ interests, including a controlling Seven West Media stake, Caterpillar dealerships in NSW, Western Australia and the Australian Capital Territory, Coates Hire and a 30 per cent Beach Energy stake.