The next move of the industrial company chief executive Vik Bansal is now under watch, with sources around the market betting he will likely jump ship if Boral is fully privatised by Seven Group Holdings, controlled by the billionaire Stokes family.
Mr Bansal, who previously ran Cleanaway and the privately held InfraBuild, has presided over Boral’s better-than-expected half year earnings result after starting at the company in October 2022, and shareholders back his ability to drive down company costs and increase prices to boost performance.
The understanding around the market is that his aspirations are always thought to have been running a large, ASX-listed company, so this deal defeats that ambition.
Under Mr Bansal’s leadership, the $5.85bn Boral, once a mixed performer before the Stokes family emerged on its register, is now trading at about 25 times its net profit and has proved there is still money to be made in the building materials industry even against a soft economic backdrop.
Now the Barrenjoey and Macquarie Capital-advised Seven Group is proposing to buy the 28.4 per cent of Boral that it does not already own, Mr Bansal faces the prospect of becoming a divisional head within Seven Group Holdings, which is run by the son of billionaire Kerry Stokes, Ryan.
The Stokes family owns about 57 per cent of Seven Group and will only have to tip in up to $533m of cash for the acquisition, with the rest of the money that makes up the $2bn coming from Seven Group shares, which are trading at record highs.
Seven Group’s market value is $13bn and it trades at 12 times its net profit.
One thought is that if Mr Bansal does remain with Seven, perhaps Seven makes a play for the company he ran before taking the Boral job – waste management business Cleanaway.
Apparently, the Stokes family has had ambitions in recent years to buy a business in the waste management arena.
Yet Cleanaway – a perennial takeover target that has drawn the interest of many suitors in the past – is currently trading at 30 times its net profit, so the numbers don’t really work, and there’s not really any synergies bringing the business together with Boral.
And the remediation risks with waste dumping are high.
The Stokes family is understood to have been looking at acquisition opportunities in the industrial space for a while, specifically waste management, but its focus has been more in construction and demolition waste.
The Macquarie Group-backed skip bin operator Bingo Industries could fit that bill, but Macquarie is unlikely to be a seller.
Also, the Stokes family like well-established, unloved, badly run businesses, and the consensus so far is shareholders are satisfied with Cleanaway boss Mark Schubert.
Seven Group’s offering is 0.1116 SGH shares and $1.50 cash per Boral share or $6.05 a share.
The price will increase by 10c a share if it secures over 80 per cent and the board recommends the offer, and a further 10c if it is past the compulsory acquisition threshold.
Maximum consideration is $6.25 a share.
UBS is working for Boral’s three independent directors out of the six-person board.
Seven Group gained control of Boral in 2022 through its nil premium takeover bid at $6.50 per share after earlier creeping up the register to gain 23 per cent.
The bid valued the business at almost $8bn or 22 times net profit.
Boral’s chief financial officer left while Seven was in control, as it pocketed profits from selling US-based assets from Boral’s unpopular $3.5bn Headwaters building materials acquisition in 2016.
Seven was quick to put its own people in the boardroom, so it will be a lot for the independent directors to take on.
Benefits of this deal for Seven Group are control of all the Boral cashflow, better borrowing terms and gaining a blue ship stock using scrip rather than cash after shares on Friday closed at $5.85, making the takeover bid premium 6.8 per cent at best.
Boral’s cash will further assist Seven Group in paying down its $4bn of net debt.
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