The Boral Limited (ASX: BLD) share price is up amid the completion of the sale of its 50% owned Meridian Brick business in North America to Wienerberger for US$250 million. Boral's share is US$125 million, which is effective 6 October 2021.
What is Boral going to do with the money?
Management said that proceeds from this divestment of US$125 million will add to surplus capital from other recent divestments.
Boral is seeking shareholder approval at the annual general meeting (AGM) on 28 October 2021 to return up to A$3 billion of surplus capital to shareholders by an equal capital reduction, subject to shareholder approval and an appropriate class ruling from the Australian Taxation Office.
At the time of the initial news, Boral said that subject to exchange rates and final adjustments, Boral expects to report a "small" pre-tax accounting profit on the sale of approximately $10 million.
Why did it decide to sell Meridian Brick?
The Boral CEO and managing director Zlatko Todorcevski said the divestment of Meridian Brick represents the final step in Boral's exit from brick operations globally:
In recent years Boral has divested its interests in bricks in Australia and since forming the bricks joint venture in the US with Lone Star in 2016, the plan was to ultimately prepare the business for sale.
As part of this process, Meridian's leadership was refreshed with the appointment of a new CEO in December 2018, and a stronger focus on improving performance.
The agreed sale represents a fair value for the business and reflects its improved performance.
The divestment of Meridian is a further step in Boral's portfolio review works. It helps to streamline our US business and allows us to further focus on the improvement initiatives underway in the remaining businesses in Boral North America.
The Brickworks share price has risen by around 30% since the sale of this business.
What may be influencing the Boral share price?
Seven Group Holdings Ltd (ASX: SVW) has been buying shares of Boral and had offered $7.40 per Boral share. Seven Group now owns around 70% of the business.
However, the Boral independent board committee recommended that shareholders reject the offer because it was believed the offer undervalues the business.
The board said that the offer of $7.40 per share was materially below the independent expert's assessed valued of between $8.25 to $9.13 per share. Grant Samuel also advised Boral that the final price agreed for the sale of its North American building products business of US$2.15 billion exceeded the US$1.8 billion to US$2 billion valuation range attributed to its independent expert report.
Boral's board said that the renewed strategy is expected to unlock significant value in the near-term from the potential divestment of assets, particularly in North America, and will aim to drive value creation and earnings growth, including through its transformation program.
Macquarie Group Ltd (ASX: MQG) is one of the brokers with a positive outlook on the Boral share price. It has a buy rating on the business, with a price target of $7.30.
