Boral quarry sticking point in Seven’s $1.9bn offer

The future of a major quarry operated by construction giant Boral on Melbourne’s outskirts has emerged as a sticking point in rejected suitor Seven Group’s $1.9bn buyout offer.

Boral is the country’s biggest quarry owner

The future of a huge quarry operated by construction giant Boral has emerged as a sticking point in rejected suitor Seven Group’s $1.9bn buyout offer for the company.

Boral on Thursday continued to claim the offer was “not fair or reasonable”, but the potential cost of replacing its Deer Park quarry on the outskirts of Melbourne if a mooted development proceeded may impact value, according to its independent expert Grant Samuel

Boral is the nation’s largest quarry owner with more than 100 metropolitan and country quarries providing concrete aggregates, crushed rock, sands and gravels for roads, buildings and other infrastructure. The Deer Park quarry was established in 1965 as a major source of hard rock aggregate for the burgeoning Melbourne metropolitan market.

Occupying 1100 hectares of land just off the Western Freeway at Ravenhall, the quarry produces between two and three million tonnes of basalt-based aggregate each year.

According to a presentation to Boral investors earlier this year, the Deer Park site had been identified by the government as significant industrial land with a potential gross developable area of 450ha. The company said that together with developer LOGOS, it was pursuing “potential industrial development opportunities”.

Boral quarries are a big part of its business.

Seven claims Boral’s quarry reserve life would be less than 30 years if the Deer Park development proceeded. Boral therefore would need to incur incremental capital expenditure above the level that would be covered by Boral’s regular ongoing quarry replacement. Those costs could be as much as $195m.

That rethink on the quarry means Grant Samuel’s amended value range for Boral is now $6.42-$7.05 per share, a reduction of a little over 1 per cent from its earlier $6.50-$7.13 per share valuation. That is still higher than Seven Group’s offer of between $5.96 to $6.39.

Boral said Grant Samuel still considered the Stokes-controlled Seven Group’s offer as below par considering valuation issues raised by the rejected bidder.

Boral’s independent directors continue to urge minority investors to reject the bid from its near-75 per cent shareholder by taking no action on the offer.

In a third bidder’s statement released to the market on March 26, Seven Group had said it was “extremely disappointed” with “fundamental errors” made in Grant Samuel’s report, which directly affected the valuation range and the independent expert’s conclusion that led a group of independent Boral directors to urge minority shareholders to rebuff its offer in a target’s statement on March 19. Boral gained 0.5 per cent to $5.95 Thursday.

Sydney-based Aitken Mount Capital Partners last month agreed Seven was trying to win Boral “on the cheap” with investors likely to make more money by keeping it independent. Channelling legendary movie character Darryl Kerrigan of The Castle, Aitken called for Boral shareholders to tell Seven “they’re dreamin’ and don’t allow billions of value be transferred to Seven”.

Aitken said family offices – funds run by wealth families – had the opportunity to acquire a 10-15 per cent stake in the company with the potential to more than double earnings in the long term.

“There is far greater potential for upside in Boral as an independent entity than as part of Seven Group,” Aitken said.

Seven Group earlier this month moved to garner takeover support from Boral shareholders for its takeover of the building group by improving the payment terms and removing all conditions.

Aitken Mount said buying a stake in Boral would give investors multiple options, including a stake in the largest quarry owner in Australia. Aitken Mount Capital partner Angus Aitken said: “We are in no way negative on Seven. We just think you can make a lot more money keeping Boral listed separately.”

Originally published as Boral quarry sticking point in Seven’s $1.9bn offer