Seven Group lifts Boral holding to 41 per cent
Boral spent $131m on buying back its own shares on Wednesday, helping push Kerry Stokes’ Seven Group to almost 41 per cent of its register.
Boral spent $131m on buying back its own shares on Wednesday, helping push Kerry Stokes’ Seven Group to almost 41 per cent of its register, as time ticked down on its bid for the building products company.
Seven Group said on Thursday it had now spent $444.5m on increasing its Boral stock, including $250m on market, with another $193.7m worth of shares accepted into its offer, now worth $7.40 a share.
The sudden surge in buyback levels – Boral’s previous buying on Tuesday was only $26.2m – plus Seven Group’s sweetened offer has all but cemented Mr Stokes’ control of the company, with Seven Group’s 40.95 per cent holding making it almost a certainty Boral’s directors will be forced to accede to demands to offer Seven Group another two seats on its eight-member board.
Boral’s board has previously said it would look to maintain a board with an independent chair, plus a majority of independent directors, irrespective of Seven Group’s final position on its register when the takeover offer closes.
Seven Group chairman Ryan Stokes currently sits on the Boral board, but has taken a step back while the takeover offer is underway.
Seven Group’s bid closes on July 15 and, at current rates of the buyback and acceptances, the company could be on track to win a 50 per controlling stake in Boral – although it is not clear how many significant blocks of shares remain outstanding on the Boral register, with hedge funds, John Wylie’s Tanarra Capital and Perpetual Investments believed to have sold into the bid when it firmed at $7.40 this week.
It is unclear why Boral suddenly lifted its on-market buyback levels on Wednesday, but it has been buying an average of about a third of the company’s daily trading volumes during the program.
It paid an average of $7.402 a share on Wednesday and lifted its total spending on its own shares since the buyback was launched in April to $772.2m.
The Boral board continues to recommend that shareholders reject the Seven Group offer, arguing it remains below the independent expert’s valuation for the company’s stock of between $8.25 and $9.13.
It is not clear whether Seven Group’s growing strength on the Boral register could force a reversal of that position – seen as most likely if Seven Group exceeds a 50 per cent holding in the building products company.
Boral is believed to have only about 11.8 million shares of headroom left in its current buyback program, worth about $87.3m at $7.40 a share. Absent further Seven Group buying, Boral’s own buyback would lift its stake to about 41.4 per cent of the company.
The total of the current buyback, when completed, is believed to have only lifted Seven Group’s relative position on the Boral register by 2 to 3 per cent – about what Seven Group could buy on the market every six months under so-called “creep provisions” in Australia’s company laws.
But whether it is an effective and appropriate use of the company’s cash during the takeover has been an issue of controversy between the two sides.
Boral argues it has been buying shares at below the independent expert valuation of the stock, getting them at a good price while allowing shareholders to sell at a slight premium to Seven Group’s offer – which started at $6.50 a share, before it was conditionally lifted to $7.30 and now $7.40.
But Seven Group last week demanded Boral’s board cease the buyback, arguing its decision to keep buying after the close of the financial year was poor conduct, and noting that Boral had previously committed to not use the buyback as a takeover defence tool.
“Following the close of the financial year, the company is in possession of material information on the performance of the business, particularly the underperformance of Boral Australia, which has not been adequately disclosed to the market in the target’s statement,” a Seven Group spokeswoman said.
Boral chief executive Zlatko Todorcevski rejected that argument last week, saying shareholders had been kept informed of the company’s prospects through its target statement and related disclosures.
Boral has since bought another $235.3m worth of its own shares on market.
Boral shares closed down 1c to $7.39 on Thursday.
Seven Group’s bid closes on July 15 and, at current rates of the buyback and acceptances, the company appears to be on track to win a 50 per controlling stake in Boral.
Boral paid an average of $7.402 a share for its market activity on Wednesday.
While the Boral board continues to recommend that shareholders reject the Seven offer, that position could be reversed – without too much loss of face – if Seven tips over a 50 per cent holding in the company.
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