Boral JV delivers technology, cash

Cash in the bank, reduced debt and possibly a special dividend. Boral banks on the technology of its jv partner to deliver earnings growth.

At first glance, Boral's (BLD) latest deal appears not so much a joint venture as a partial sale.

Its $1.6 billion hook up with American group USG in Australasia, Asia and the Middle East will involve a depletion of earnings in the year ahead and an upfront payment from the American group of $500 million.

The longer term upside for Boral in this deal – which Eureka Live understands has been 12 months in the making – is access to USG's gypsum and plashterboard technology which ultimately will reduce costs, delivering the venture a competitive advantage that will lift Boral earnings.

For USG, a predominantly US centric operation, the joint venture delivers growth through accessing Boral's international distribution network.

Two years ago, Boral expanded its gypsum operation with the $600 million buyout of its joint venture with Lafarge's Asian plasterboard business, which has helped lift earnings in the past few years.

The lopsided nature of this latest deal is illustrated by various contributions of the two parties.

The venture has an asset value of $US1.6 billion with Boral assets totalling $A1.35 billion and $US250 million of assets and intellectual property from USG.

Most of the funds received will be used to reduce debt, with gearing to be cut to 22% from 30%, although Boral has flagged some "capital management initiatives" depending on market conditions. That's code for a special dividend.

The venture will slice $14 million off Boral's year to June, 2014, net profit, it said.

The biggest challenge for Boral remains its US operations. In recent years has been its loss making American division, where its brick business has been under pressure from an industry left reeling from the US housing market downturn and intense competition from rivals that has squeezed margins (see Cliona O'Dowd's Collected Wisdom).

This deal does nothing to alleviate those problems.

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