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Building materials supplier Boral says its $US2.6 billion ($A3.5 billion) acquisition of US firm Headwaters Incorporated will more than double Boral’s US business and transform the whole group.

Headwaters, with revenue of $US1.1 billion and earnings of $US218 million, is a manufacturer of building products and one of the largest marketers of fly ash in the United States.

Fly ash, a by-product of coal combustion in power stations, is added in manufacturing of concrete as a cement substitute to improve performance and quality.

Boral, with a market capitalisation of $4.6 billion on the ASX, says the acquisition will add significant scale to its own US fly ash business and accelerate the development of its offering of light building products.

Headwaters’ fly ash business is about four times bigger than that of Boral and the acquisition will also boost Boral’s presence in the growing US construction market.

Boral chief executive Mike Kane said Headwaters’ businesses – fly ash, specialty roofing, architectural manufactured stone, and light building products – were complementary with Boral’s existing US operations and transformative for Boral as a group

“We can now be confident in Boral’s position as a global building products and construction materials group,” Mr Kane said on Monday.

Mr Kane said the US was an attractive growth market and Boral, which also operates in Asia, Australia and the Middel East, had been seeking to make a strategic US acquisition.

“We are buying a well-run, growing and profitable business which we believe will add significant value to our existing US business,” he said.

Boral will pay $US24.25 in cash for each share of New York-listed Headwaters – a 34 per cent premium to the US firm’s $US18.16 average share price over the past month.

The $US2.6 billion acquisition price includes net debt of $US704 million.

Boral expects the acquisition will add to earnings per share on a pro forma basis in 2017 and to produce benefits of $US100 million a year within four years of closing the deal.

RBC Capital Markets analyst Andrew Scott said the acquisition of Headwaters looked expensive but could be more reasonable if the $US100 million of synergies were taken into account.

Describing Headwaters as “a mixed bag of assets”, Mr Scott said the US firm’s flyash business was attractive and the stone and roofing businesses were “a logical fit”.

However he said RBC was not convinced Headwaters’ windows and vinyl products business “add to the quality of the overall group”.

“The acquisition price in our view is fair but not cheap, and we remain conscious that there is a mix of assets and attractiveness across the Headwaters portfolio,” Mr Scott said in a research note.

Boral will fund the acquisition through a $A450 million institutional placement, a $A1.6 billion one-for-2.22 renounceable entitlement offer and a mix of cash and debt.

The deal, already approved by the Headwaters board, is expected to be completed by mid-2017, subject to regulatory approval and Headwaters shareholder approval.

Boral shares remain in a trading halt while the company undertakes the institutional entitlement offer.

 
  • Though I can't really comment about the particular merits or otherwise of this specific transaction, it is always good to see an Australian company going abroad. Basically, we should reach out and embrace global opportunity or we can.

    Australia should not be a branch economy. We must reach out and grab our opportunities and continue to take our place on the world stage.

Position Partner – 300x 600 (construction – expire July 31 2018)
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