Boral sells off slice of plasterboard business for technology's sake
Boral on Thursday agreed with the American firm USG, formerly known as US Gypsum, to place all of their Asia, Pacific and Middle East plasterboard operations into a 50-50 venture.
As part of the agreement, Boral is contributing assets valued at $US1.35 billion and USG $US250 million, including patents covering new plasterboard products. To equalise their contributions, Boral will receive $US500 million up front, along with a prospective further $US75 million, depending on future earnings.
Separately, USG is to fund the completion of a plasterboard plant in Oman, which is also to be included in the joint venture.
"This is a technology deal, first and foremost," Boral chief executive Mike Kane told analysts.
Boral has extensive plasterboard production and distribution throughout the region, but has been concerned about its lack of access to latest technology, he said.
USG has developed a plasterboard product that it claims is 30 per cent lighter than the traditional product, stronger and more resistant to sagging, potentially important in the Asian market.
The French industrial group Lafarge wanted to sell out of its Asian venture, formed more than a decade ago, and "which paved the way" to enter the joint venture with USG, Mr Kane said. The venture will be self-funded and the new production technology will be rolled out over the next two years, costing $50 million, of which around half will be the capital cost of changes to the plants and the rest running costs in training, marketing and the like.
Boral expects to receive the $US500 million payment early in 2014, and will use an initial $US250 million to repay debt, which has opened the door to "capital management initiatives", it said, without clarifying whether this could be a share buyback or a special dividend.
Investors reacted positively to the news, pushing Boral's shares up 28¢ to close at $5.03. Analysts were less enthusiastic, since Boral initially will experience some earnings erosion from the venture.
Frequently Asked Questions about this Article…
Boral sold a portion of its plasterboard business to gain access to the latest technology, which is crucial for staying competitive in the market. The deal with USG allows Boral to leverage advanced plasterboard products that are lighter, stronger, and more resistant to sagging.
Boral and USG have entered into a 50-50 joint venture, combining their Asia, Pacific, and Middle East plasterboard operations. This partnership aims to enhance their technological capabilities and expand their market presence.
Boral received $US500 million upfront from the sale, with a potential additional $US75 million based on future earnings. The company plans to use an initial $US250 million to repay debt, which could lead to capital management initiatives like a share buyback or special dividend.
USG contributes advanced plasterboard technology that includes products 30% lighter than traditional ones, offering greater strength and resistance to sagging. These innovations are particularly beneficial in the Asian market.
Investors reacted positively to the news, resulting in a 28-cent increase in Boral's share price, closing at $5.03. However, analysts expressed some concerns about potential initial earnings erosion from the venture.
The rollout of the new production technology is expected to cost $50 million over the next two years. This includes capital costs for plant modifications and running costs for training, marketing, and other operational needs.
The new plasterboard plant in Oman, funded by USG, is included in the joint venture. This plant will help expand the production capacity and technological reach of the partnership in the region.
Boral anticipates strategic benefits such as enhanced access to cutting-edge technology, improved market competitiveness, and potential financial gains from the joint venture with USG. This partnership is expected to strengthen Boral's position in the plasterboard industry.
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