24 November 2016

Boral bets on Trump’s infrastructure plan

Construction materials manufacturer Boral is carrying out its largest-ever investment by acquiring Nasdaq-listed Headwater for around USD 2,600 million as President-elect Donald J. Trump, who will take office in January, seeks to ramp up spending on infrastructure. The Australian firm is offering to buy each share for USD 24.25, a 20.7 per cent premium over Headwater’s close on 18th November. As a result, the target’s equity jumped 17.1 per cent to close at USD 23.52 following the announcement.

The boards of both companies have unanimously given the green light, though the transaction still remains subject to approvals from shareholders and regulators.  The deal, which is expected to close next year, proves a big bet as it will more than double Boral’s US business to yield a combined USD 1,800 million in revenue.

According to Trump’s investment plan drafted by advisors Peter Navarro and Wilbur Ross, the soon-to-be head of state will splurge on US infrastructure with a gargantuan USD 1,000 billion budget over a decade in order to create jobs and spur economic growth. The stimulus package includes rebuilding “highways, bridges, tunnels, airports, schools, hospitals,” Trump said. This is set to boost demand for Headwater’s fly ash, a by-product of burning pulverised coal used to produce concrete, according to the Wall Street Journal. However, Headwater’s home building material business, which makes up about one third of its revenue, faces uncertainty too as a likely interest rate hike by the US Federal Reserve could weaken demand for housing, the newspaper reported.

The amalgamation is expected to enhance efficiency, which will save both firms USD 100 million annually within four years of closing. In a statement, Boral’s chief executive Mike Kane, said: “It’s the synergy opportunities that help make this a highly compelling acquisition, and I am confident that we have the right team in place to bring together the two portfolios, drive integration and deliver strong value creation for Boral’s shareholders.”

To part finance the acquisition, Boral is raising around AUD 2,058 million through a rights issue and an institutional placing, which are both being underwritten by Citigroup, Macquarie and JP Morgan. The balance of the consideration will be funded by Boral’s existing cash, as well as a debt bridge facility.

Listed on the Australian Securities Exchange, Boral posted revenue of AUD 4,311 million in the 12 months ended 30th June 2016, down 0.3 per cent on the AUD 4.298 million recorded in the previous year. Its net profit totalled AUD 256 million, compared to AUD 257 million in 2015.

Headwater has appointed Deutsche Bank as a financial advisor to the deal, while Citigroup is assisting Boral.

© Zephyr