Analysts back Boral snub to Seven Group takeover bid

Boral has rejected Kerry Stokes’ $8bn offer. Picture: Hollie Adams

Analysts have backed a move by Boral to reject a takeover bid by Seven Group Holdings that values the country’s largest building materials provider at $7.9 billion.

The Kerry Stokes-controlled Seven on Monday announced a $6.50 per share takeover bid, which was in line with Boral’s closing share price the same day. The offer is expected to open on May 25 and run for a month.

Seven said that it wanted 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.

Boral on Tuesday rejected the Seven offer, saying it was opportunistic and undervalued the company, which has plans to cut its costs by $300m.

Morgan Stanley analysts believe the bid would 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 per share bid in the near term.

The offer equates to 22 times forecasted 2022 net profit and eight times earnings before interest, tax, depreciation and amortisation, the analysts said.

Currently, Seven Group holds a stake of about 23 per cent in Boral, which is likely to discourage a rival suitor coming forward, the analysts said.

Takeover rules stipulate that the company can only increase its interest in Boral via creep provisions without launching a takeover bid.

Morgan Stanley analysts believe that the company will have benefits from the anticipated sale of its assets in the United States.

“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.”

Barrenjoey Capital Partners is working with Seven Group as its adviser, while Allens is acting as 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.