The Boral Limited (ASX: BLD) share price surged for the second day on rumours that it may be a takeover target.
Shares in the building materials group jumped 6.6% to $3.54 on Tuesday – making it the third best performer on the S&P/ASX 200 Index (Index:^AXJO) after the Perenti Global Ltd (ASX: PRN) and Domain Holdings Australia Ltd (ASX: DHG) share price.
Corporate interest in Boral
The big jump in Boral, which puts its two-day gain to nearly 14%, puzzled many before rumours were published in the Australian Financial Review pointing to a large buyer.
It's speculated that Kerry Stokes' Seven Group Holdings Ltd (ASX: SVW) has been a keen buyer of the stock on Friday when 150 million Boral shares changed hands. That's equivalent to 12% of Boral.
We should know soon if Seven Group is behind the frenzy as it will need to lodge a substantial holder's notice with the ASX this week – assuming the rumours are true.
Why Seven Group might be interested in Boral
Such a move makes strategic sense. First, Seven Group has a track record of buying businesses, such as construction equipment rental company Coats Hire.
Boral will allow the group to expand vertically into the infrastructure construction sector by providing both materials and equipment.
Seven Group is tipped to win work on the Snowy Hydro 2.0 project, the Western Sydney Airport and WestConnex extensions, according to the AFR.
Wounded animal
Boral is underperforming the market after a series of management missteps that culminated in its chief executive Mike King announcing his exit in August.
Not only is its share price in the doldrums, which makes it an opportunistic target, but its effectively leaderless. All the more enticing for any would be acquirer.
But a full takeover isn't a sure thing.
Next move may not be a takeover
Boral's troublesome US business doesn't quite fit into Seven Group's portfolio and Boral is facing a class action lawsuit over an accounting scandal involving the group's US windows business.
Any new owner of Boral would be liable to pay damages if the court rules against the Boral.
So, this means that Seven Group may be buying itself a seat at the table in any carve-up of Boral's assets.
Boral is under pressure to consider a radical restructure that would involve divesting assets.
Foolish takeaway
I have picked Boral as an ideal tax-loss selling candidate a week ago, before the corporate action was revealed.
This doesn't change my dim view of Boral as I don't recommend investors buy shares solely based on takeover hopes.
I rather stick to better quality names in the industry like James Hardie Industries plc (ASX: JHX) and CSR Limited (ASX: CSR).
Further, these stocks are better placed to benefit from the federal government's new housing grants, which are expected to be announced this week.
