James Hardie Industries plc shares dropped sharply today after the company announced a big acquisition that will reshape its presence in the building materials market.
Shares fall 11%
As of mid-morning, shares in the ASX 200-listed company had fallen 11% to a 52-week low of A$41.51 following news it will acquire The AZEK Company Inc. (NYSE: AZEK) in a deal valued at US$8.75 billion (A$14 billion), including AZEK’s net debt.
The transaction will be funded through a mix of cash and newly issued James Hardie shares.
AZEK shareholders will receive US$26.45 in cash and 1.0340 James Hardie shares listed on the New York Stock Exchange for each AZEK share.
Based on James Hardie's last closing price, this equates to US$56.88 per share, representing a 26% premium to AZEK’s 30-day average trading price.
Upon completion, James Hardie shareholders will own around 74% of the combined company, with AZEK shareholders holding the remaining 26%.
Market reaction suggests investor concern over the acquisition price. However, management emphasised the strategic rationale, highlighting growth and market expansion opportunities.
Unique opportunity
“This is a unique opportunity to drive growth and increase profitability,” said James Hardie Chief Executive Officer Aaron Erter. “Together, we will be well positioned to drive sustained above market growth as a leader across attractive categories for the exterior of the home.”
AZEK Chief Executive Officer Jesse Singh added: “We are bringing together two customer-centric organisations with a shared commitment to innovation and building a better, more sustainable and resilient future.”
The combined entity expects to generate US$5.9 billion in annual net sales and US$1.8 billion in adjusted EBITDA, with anticipated improvements to James Hardie’s financial profile and free cash flow exceeding US$1 billion annually once synergies are realised.
James Hardie shares have declined 32% over the past 12 months.