Stokes family’s Seven Group slams Boral valuation

Kerry Stokes’ Seven Group claims “fundamental errors” were made in a report that scuppered its $1.9bn buyout of building materials giant Boral.

The Stokes family’s Seven Group is looking to buy the shares it doesn’t currently own in building materials giant Boral. Picture: AAP/Matthew Vasilescu

The billionaire Stokes family’s Seven Group has slammed an independent report that led to the rejection of its $1.9bn buyout bid for building materials giant Boral.

In a third bidder’s statement released to the market on Tuesday, Seven Group said it was “extremely disappointed” with “fundamental errors” made in advisory firm Grant Samuel’s report, which valued Boral within the range of $6.50 to $7.13 a share, above Seven Group’s offer of between $5.96 to $6.39.

It said the errors directly affected the valuation range and the independent expert’s conclusion that the offer was not fair and reasonable. That conclusion was relied on by a group of independent Boral directors, who urged the company’s minority shareholders to rebuff Seven’s offer in a target’s statement on March 19.

“As a consequence, the target’s statement is unbalanced, selective and risks fundamentally misleading Boral minority shareholders,” Seven said in its bidder’s statement on Tuesday.

“SGH (Seven Group Holdings) considers that Grant Samuel should revise its independent expert’s report to correct these fundamental errors, and Boral’s bid response committee should amend its recommendation to Boral shareholders as a result.”

Boral’s three independent directors who form the company’s bid response committee, led by Rob Sindel, recommended that minority shareholders reject Seven’s offer of 0.1116 Seven Group shares and $1.50 to $1.70 in cash per share, arguing it came in below the independent expert’s assessment of the company’s market value.

However Seven argues Grant Samuel “inappropriately” attributed value to a carbon border adjustment mechanism and included “unrealistic price and margin increases”.

It also claims the valuation “failed to consider critical cost of capital inputs” and did not consider the impact of a range of property revaluation taxes.

While Grant Samuel’s report concluded that Seven’s offer was not reasonable, it noted that the judgment was “finely balanced”, and for shareholders with a “low tolerance for risk” there was a case for accepting the offer.

Seven said that assuming the errors were not made, and that “greater emphasis” was placed on Seven already having control of Boral, the “very low prospects” of an alternative bid, Seven’s commitment not to purchase Boral shares above $6.25 for 12 months following the offer’s close date, and the “real risk” of Boral’s share price falling to pre-bid levels of around $5.80 if the acquisition does not proceed, then Grant Samuel should have at least found the offer to be “reasonable” and Boral’s bid response committee should have recommended that shareholders accept it.

It also reiterated that Boral had not paid a dividend for two years, and due to a “combination of limited franking credits and a significant investment program”, was unlikely to pay dividends “for some time”.

Seven, which holds just over 73 per cent of Boral, declared that its offer was best and final when it was pitched last month. The offer is due to close on April 4.

Boral, under the leadership of Vik Bansal, is looking to rebuild its business after major restructuring, which included cutting costs and a flurry of asset sales as the group retreated from its ill-fated ventures in the US market.

Seven’s offer comes amid a consolidation of Australia’s construction materials sector, with Boral’s rival CSR recently agreeing to a $4.32bn takeover offer from French building giant Saint-Gobain.

Boral shares were trading 1.2 per cent lower on Tuesday morning at $6.08. Seven Group shares were 2.6 per cent lower at $40.25.

Originally published as Stokes family’s Seven Group slams Boral valuation