The Boral Board has again urged shareholders to reject Seven Group’s latest update to its Offer to buy more shares in the company after it secured a 52.65 per cent stake.
On 15 July, Seven Group Holdings (SGH) announced the conditions to its Second Conditional Increase had been met, having achieved a greater than 50 per cent stake in Boral Limited. It increased the consideration under the Offer from $7.30 to $7.40 cash per Boral share. The SGH Offer Period has now been extended to close at 7:00pm on 29 July, 2021.
In response to these conditional increases, Boral’s Independent Board Committee, led by Chairman Kathryn Fagg, has issued a Sixth Supplementary Target’s Statement, continuing a unanimous recommendation to its shareholders that they reject the revised SGH Offer. It cites four reasons:
- The Offer is “materially below” the assessment of value of between $8.25 and $9.13 per share (including a premium for control) identified by independent expert Grant Samuel & Associates, particularly on the back of the recent divestment of some of Boral’s North American buildings products businesses. In addition, and as noted in the First Supplementary Target’s Statement dated 21 June, 2021, Samuel advised Boral that the final price agreed for the sale of its North American building products business of $USD2.15 billion ($AUD2.88 billion) exceeds the $USD1.8 to $USD2.0 billion ($AUD2.41 to $AUD2.68 billion) valuation range estimated in its Independent Expert’s Report.
- Boral’s renewed strategy is to continue to unlock significant value in the near-term from potential divestment of assets, notably in North America, and to drive value creation and earnings growth, including through its transformation program.
- The SGH offer is opportunistic and designed to take advantage of an improving outlook for Boral.
- SGH is attempting to increase its influence over Boral without paying fair value. The increased SGH Offer of $7.40 per Boral share represents a 3.4 per cent premium to Boral’s share price of $7.16 as of 23 June, 2021 and a 7.2 per cent premium to Boral’s share price of $6.90, as of 24 June, 2021 – neither, Boral asserts, reflect a sufficient premium for an increase in control.
As part of point 2, the committee has strongly argued that Boral should from the recent sale of its North American buildings products businesses now have surplus capital of ~$3.6 billion – equating to $3.02 per Boral share (based on cash balance and number of shares, as of 31 May, 2021). The company will determine the appropriate form of returns to shareholders, which may involve further shareholder approvals.
Potential consequences of SGH takeover
Pundits in the financial media are already declaring that with its stake in the company now in excess of 52 per cent, Seven Group has effectively won control of Boral with its $8.8 billion takeover bid. SGH has stated in its Bidder’s Statement dated 10 May, 2021, that it will review its representation on the Boral Board and may seek additional representation that is “reasonably proportionate” to its interest in Boral shares.
In response to this speculation, the Boral Independent Board further outlines in the Sixth Supplementary Target’s Statement the potential consequences for Boral shareholders of SGH acquiring majority ownership. It stipulates that:
- SGH will, despite having made a commitment in its statement of 15 July, 2021 to retain a majority of the independent directors, be able to control the composition of the Boral Board and influence Boral’s dividend policy, the composition of its management and the strategic directions of Boral’s businesses and subsidiaries.
- There is no guarantee that SGH will abide by previous statements that would “continue to support the current publicly disclosed strategy of the Boral Board” or re-engage with the Boral Board to “collectively drive Boral’s renewed strategy and maximise value for all shareholders”. These intentions could change at any time and without notice.
- Boral’s share price may fall after the end of the Offer Period. This may be offset by some of the positive occurrences stipulated in point 2 of the recommendations to reject the Offer.
- A number of Boral’s financing arrangements and material contracts have provisions which can be triggered by a change of control of Boral – although no “material detriment” is expected to result from these provisions.
- The liquidity of Boral’s shares may be lower and its weighting in Standard & Poor (S&P) and Australian Stock Exchange (ASX) indices may be reduced. Indeed, Boral announced on 9 July that S&P had placed Boral’s BBB credit rating on CreditWatch Negative. S&P took this action in the belief that “the current shareholding increases the likelihood that Seven can exert direct or indirect control over Boral to the extent that it could influence Boral’s strategy and disposition of cash flows”.
- The Corporations Act permits SGH to increase its holdings in Boral by up to three per cent every six months without making a full takeover offer, enabling it to gradually control Boral over time. SGH has stated it will not acquire Boral shares above its current Offer of $7.40 per cash share for at least 12 months from 25 June, 2021.
Governance protocols
With speculation rife about the future make-up of the Boral Board, the Sixth Supplementary Target’s Statement reiterates that consistent with Boral’s Target’s Statement issued on 10 June, 2021, the Boral Independent Board Committee will ensure that it has governance protocols in place that are in the best interests of all shareholders. Any proposal for additional SGH representation on the Board will be considered by the independent directors of Boral on its merits at the appropriate time.
As per the 10 June Target’s Statement, the Boral Independent Board Committee is committed to retaining the following governance structure, ie:
- The Board is to comprise a majority of independent directors, which SGH has indicated it supports.
- The Chairman is to be an independent director.
- Each Board committee is to consist of a majority of independent directors and to be chaired by an independent director.
- Other enhanced protocols that ensure Boral’s governance is conducted in the best interests of all of its shareholders.
Shares in Boral closed on the ASX at $7.38 on 15 July.
Boral shareholders with questions about the SGH Offer should call the shareholder information line on 1300 513 794 (for callers within Australia) or +61 2 9066 4081 (for callers outside Australia) from 9:00am to 6:00pm (Sydney time) Monday to Friday.
The Sixth Supplementary Target’s Statement is available to view on the Boral website.
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