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Buildings materials giant Boral (ASX: BLD) has formally rejected a takeover offer from majority shareholder Seven Group Holdings (ASX: SVW) after an independent expert revealed the bid to undervalue the company by about $1 billion.
Boral says that independent expert Grant Samuel & Associates values Boral shares between $6.50 and $7.13 each.
This compares with the bid by Seven Group, which already owns 71.6 per cent of Boral, of between $5.96 and $6.19 per share.
Based on the 94c shortfall in the offer price at the upper end of the price range, Seven’s valuation of Boral is $1.036 billion less than Grant Samuel’s, with the independent expert concluding that a significant amount of that shortfall rests in an underestimation of Boral’s surplus property assets.
Seven’s offer could be as high as $6.39 per Boral share including conditional payments, which would take the shortfall in value proposed by the investment company to 80c or $882.5 million.
“Boral has today announced that it has surplus property to which Grant Samuel has attributed a value of $1.4 billion to $1.6 billion in its independent expert's report, equivalent to $1.26 to $1.44 per share, which we expect to deliver significant value creation to Boral shareholders in the future,” says a spokesperson for Boral’s bid response committee (BRC).
The property assets were valued at just over $1 billion at the end of FY23, implying an additional $400 million to $600 million in value that is not reflected in Seven Group’s offer.
“We have carefully evaluated the SGH (Seven Group Holdings) offer and recommend that shareholders should reject the SGH offer as it undervalues Boral,” says the BRC spokesperson.
“The independent expert has concluded that the SGH offer is neither fair nor reasonable, supporting the BRC’s view. Boral management is ahead of schedule in delivering on its ‘Good to Great’ improvement strategy and is only part way through this journey.
“We encourage shareholders to remain with Boral and fully participate in the future value available through continued direct ownership of Boral.”
The BRC is led by independent non-executive director Rob Sindel and comprises all Boral directors other than the Seven Group nominees.
Boral notes that since Seven Group launched its bid on 4 March, the suitor has secured 11.66 million Boral shares representing just 1.06 per cent of Boral’s capital.
It also notes that while Grant Samuel sees the offer as not being reasonable, this judgment is “finely balanced” and determines that for “shareholders with a low tolerance for risk, there is a case for accepting the SGH offer”.
“Grant Samuel has also stated that its conclusion may change if circumstances change,” says the company.
Boral today emphasised that its “Good to Great” turnaround strategy is proceeding ahead of schedule, leading to a more than doubling of underlying EBIT from $95.3 million in the first half of FY23 to $201 million in the first half of FY24.
“Consistent with disclosure at the first half FY24 results, Boral remains focused on its ambition to maintain sustainable double-digit returns and EBIT margins,” says the company.
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