Seven Group Holdings Ltd (SGH), the owner of Network Seven and holder of a vast diversified portfolio of assets across media, industrial services, energy and investments, is looking to take full control of construction materials company Boral Limited.
SGH currently has a 71.6% controlling interest in Boral, but today proposed the acquisition of the remaining shares.
Boral IBC recommends shareholders take no action in relation to the proposed off-market takeover offer of 0.1116 SGH shares and $1.50 cash for each Boral share that it does not already own.
The offer is scheduled to open no earlier than March 4, 2024, and must remain open for at least one month after it is sent to shareholders.
SGH MD and CEO Ryan Stokes said, “Today’s announcement represents an exciting opportunity to integrate Boral into SGH’s leading Industrial Services portfolio.
"The transaction has a compelling rationale for SGH and for Boral’s shareholders who would become SGH shareholders as part of the transaction and continue to benefit from the operational improvement journey underway at Boral.
"The terms of the offer reflect our disciplined approach to capital allocation, and we will retain a strong balance sheet position post-transaction.
“The integration of Boral as a 100% owned business is a natural evolution for SGH, supporting our position as a leading ASX industrial business. The integration is expected to support and accelerate the delivery of the current 'Good to Great' performance journey.”
A board committee of Boral’s independent directors has been established (the Independent Board Committee or IBC) in order for Boral to respond to the offer.
Shareholders do not need to take any action at this stage. The IBC will keep shareholders fully informed of further developments as they occur.
The IBC notes the continued strong performance of the Boral business and management team, as demonstrated in Boral’s 1H24 financial results and FY24 guidance upgrade announcement on 9, 2024.
Shareholder returns
SGH, a prominent entity within the ASX 100 industrial services sector, boasts a proven ability to significantly enhance the operational efficiency and sustainability of the businesses it manages. The company has consistently provided its shareholders with exceptional returns, evidenced by a Total Shareholder Return (TSR) of 180% over the previous five years.
For shareholders of SGH, the proposed acquisition of Boral marks a significant and logical advancement in the journey that began back in 2020. This move is poised to streamline operations and enhance control by transitioning Boral to a de-listed structure, thereby ensuring more direct access to its cash flows. Additionally, it presents an opportunity to trim down Boral's compliance and listing costs by around A$3 million each year.
The acquisition also opens up the possibility to augment the free float, liquidity and index weighting of SGH shares, demonstrating a disciplined approach to capital usage.
Post-transaction, SGH is expected to maintain a robust balance sheet with a leverage ratio of 2.2x. This strategic decision is underpinned by a strong confidence in SGH's future, especially following the recent upgrade in the Industrial Services sector's EBIT growth forecast to 20-25% for FY24.
For Boral's shareholders, this offer is particularly enticing as it guarantees a premium over Boral's current market trading price, despite SGH already holding a significant 71.6% interest. The offer price surpasses any closing price Boral has seen since 2007, offering shareholders a piece of SGH’s more diversified portfolio and its exceptional market returns, highlighted by a Total Shareholder Return of 180% over the past five years.
Shareholders will also gain direct exposure to SGH's management team, recognised for their disciplined capital management and knack for executing innovative, value-enhancing transactions.
Additionally, they will have the opportunity to enjoy dividends within the context of SGH’s proven history of disbursing fully franked dividends, a notable advantage considering Boral's unlikely dividend payout in the near future. Lastly, the merger will enhance liquidity for Boral shareholders within the combined entity, presenting a comprehensive package of financial and strategic benefits.
With the strategic acquisition of the remaining shares in Boral, SGH aims to expedite Boral’s path to improved performance and sustained growth. This acquisition aligns with SGH’s owner-operator model, promising to bolster SGH’s strategic adaptability and access to Boral’s cash flow.