Boral has $1bn in warchest for takeovers in US

BUILDING materials group Boral has $1 billion in its war chest for acquisitions, and chief executive Mark Selway is targeting the US for its next big splash.

"With the Australian dollar at parity, it's a good opportunity to look at assets," Mr Selway told The Australian.

Emboldened by gains from smaller purchases in the US, such as the remainder of roof tile producer Monier and the $90 million acquisition of Cultured Stone, the building group chief believes this is the time to be making a move.

"If I can find other assets in the same space in the US, with these current market conditions, I think shareholders will look back and say it was a good time to buy."

The US residential market has been struggling since the onset of the global financial crisis, with figures from January confirming annualised housing starts of about 596,000, still far below the average of 1.5 million.

Uncertainty about when the US market will recover has been a perennial negative for building materials companies.

On Friday, rival James Hardie was forced to trim its full-year earnings guidance after its third-quarter results were below expectations.

Despite the building market in the US remaining depressed, Mr Selway conceded Boral might not be able to make acquisitions "at a fraction of the cost".

He estimated Boral should be prepared to pay acquisition multiples of seven to 10.

In the half ended December, Boral paid about $75m for the half of Monier Lifetile it did not already own, and Mr Selway noted that its expectation of achieving $4m annually in synergies had already been exceeded.

Boral announced a better than expected set of figures for its first-half results two weeks ago when it reported a 31 per cent rise in pre-tax profits to $119m.

The result surprised the market, which had been banking on a downgrade to guidance, and Boral's shares rose the most in eight months. The result won over many market watchers who had been waiting for signs of a turnaround in the brickmaker since Mr Selway replaced Rod Pearse about a year ago.

Analysts believe the market could now be comfortable with a major acquisition.

"Concerns the market may have had with this company undertaking significant large-scale mergers and acquisitions have been undone by the strength of the business turnaround shown," Nomura analyst Simon Thackray said.

"However, any potential large acquisition is unlikely to be inexpensive."

Boral's operations in the US continue to struggle in weak markets, with only four to six of its 23 brickmaking plants running at one time.

The industry and investors accept that building is near a low point in the cycle and deals executed at seemingly high multiples have still won support -- such as New Zealand-based Fletcher Building's bid for plumbing supplies group Crane at an acquisition multiple of about 19.

Having won board approval for its bid, Fletcher has extended the offer until March 11 as it seeks to win 90 per cent of acceptances for its $10.07 a share offer.

Despite protests from Crane Group founding family member Peter Crane, Fletcher said it was confident it would receive the necessary acceptances.
Source The Wall Street Journal