Trumptation: Boral Limited announces giant US acquisition

Shares in building materials business Boral Limited (ASX: BLD) are in a trading halt this morning after the group announced a monster $3.5 billion (US$2.6 billion) deal to buy U.S. construction materials rival Headwaters Corp.

The timing of the deal to move heavily into the U.S. construction sector is interesting given President-elect and construction billionaire Donald Trump’s plans to spend eye-watering amounts of federal government money on building projects.

The deal

The Headwaters acquisition is to be funded via a fully underwritten $450 million institutional share placement and a $1.6 billion 1 for 2.22 renounceable entitlement offer for other Boral shareholders. The balance of around $1.5 billion will be funded via existing cash holdings and a debt facility.

Boral has offered US$24.25 per share for Headwaters which is listed on the NYSE and last closed at US$20.09 per share, with the offer price representing a chunky 34% premium to Headwaters’ one-month volume weighted average share price of US$18.16.

Unsurprisingly, the board of Headwaters has unanimously approved the offer, although it will be subject to shareholder and regulatory approval.

Boral will have a net debt to equity ratio of around 2.5x if the acquisition goes ahead as planned and the company does not expect a change to its investment grade credit ratings.

For the year ended September 2016 Headwaters had US$1.1 billion of revenues and ‘adjusted’ EBITDA of US$218 million. Boral is paying a premium 10.6x Headwaters’ adjusted EBITDA earnings guidance for FY17 on an enterprise value basis.

In compensation for the premium valuation, Boral estimates the deal will be low-double-digit earnings per share accretive at the end of its first full year of ownership. This is partly because it expects around US$100 million of cost savings within four years of ownership which would take the EV/EBITDA acquisition multiple down to 7.5x.

Whichever way you cut it this is a hefty price tag and transformational deal for Boral, with everything riding on management’s judgement and ability to deliver the expected cost savings over the years ahead.

Make Boral Great Again?

Whether or not President-elect Donald Trump’s promised ‘construction boom’ has influenced Boral’s thinking is hard to know, although the timing is interesting with both Boral and Headwaters beneficiaries of increases in U.S. government infrastructure spending.

The deal presentation also repeatedly references U.S. government legislation, policies, and funding for public infrastructure or other building projects as being relevant to the combined group’s future success.

Headwaters is also big in ‘fly ash’ production and sales. Fly ash being a novel concrete replacement material that the U.S. government has reportedly specified should be used in certain building projects.


Shareholders should study the offer document and other materials carefully prior to deciding whether to join the capital raising as Boral’s future is now tied to the success or failure of this giant acquisition.

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