Boral — Merger or Acquisition (November 2016)
78 slides from Boral's merger presentation, Nov 21, 2016
Slide 1: Boral to acquire Headwaters Incorporated
NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES ASX RELEASE 21 November 2016 Boral to acquire Headwaters Incorporated – a strategically compelling portfolio of US businesses – supported by capital raising OVERVIEW • Boral has entered into a binding agreement to acquire Headwaters Incorporated (
Slide 2: Acquisition of Headwaters
NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES Acquisition of Headwaters Boral has entered into a binding agreement to acquire Headwaters for US$24.25 per share in cash representing an aggregate enterprise value of US$2.6 billion. The Acquisition is subject to customary closing conditions, inc
Slide 3: Acquisition grows Boral's fly ash and light building products
NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES o The Acquisition significantly grows Boral’s fly ash business, expands its light building products offering, and doubles the size of Boral’s roofing and manufactured stone positions. • Significantly scales Boral’s fly ash business. The combinatio
Slide 4: Equity Raising
NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES Equity Raising Boral intends to raise approximately A$2,058 million in new equity to partially fund the acquisition through: • a fully underwritten placement to institutional investors, at A$4.80 per new share to raise A$450 million, and • a fully
Slide 5: Retail Entitlement Offer
NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES Retail Entitlement Offer Eligible retail shareholders with a registered address in Australia or New Zealand on the Record Date will be invited to participate in the Retail Entitlement Offer. The Retail Entitlement Offer will open on Wednesday, 30
Slide 6: Summary of Key Merger Agreement Terms
NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES Summary of Key Merger Agreement Terms Provision Description Structure An indirect wholly owned subsidiary of Boral will merge with and into Headwaters, with Headwaters surviving the merger and becoming an indirect wholly owned subsidiary of Boral.
Slide 7: Not for release or distribution in the United States
NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES NOT FOR RELEASE OR DISTRIBUTION IN THE UNITED STATES This announcement has been prepared for publication in Australia and may not be released or distributed in the United States. This announcement does not constitute an offer, invitation or recomm
Slide 8: Acquisition of Headwaters
Acquisition of Headwaters Investor presentation 21 November 2016 NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 9: Important notice and disclaimer
p Important notice and disclaimer This investor presentation (Presentation) has been prepared by Boral Limited (ABN 13 008 421 761) (Boral). This Presentation has been prepared in relation to Boral’s acquisition of Headwaters and a fully underwritten 1 for 2.22 pro-rata accelerated renounceable enti
Slide 10: Important notice and disclaimer (cont.)
p Important notice and disclaimer ((cont.)) Investors should be aware that certain financial measures included in this presentation are ‘non-IFRS financial information’ under ASIC Regulatory Guide 230: ‘Disclosing non-IFRS financial information’ published by ASIC and also ‘non-GAAP financial measure
Slide 11: Contents
Contents I T Transaction ti overview i 4 II Overview of Headwaters 9 III Strategic rationale 13 IV Integration 28 V Transaction funding 31 VI Trading update and summary 36 A Additional information 39 B Headwaters FY16 pro forma EBITDA bridge 44 C Summary of key merger agreement terms 46 D Key risks
Slide 12: Transaction overview
Transaction overview NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 13: Headwaters highlights
g g Headwaters highlights Boral has entered into a binding agreement to acquire Headwaters, a leading building products manufacturer and fly ash marketer in North America, for ~US$2.6 billion1 US$1.1 billion revenue in FY20162 Leadership positions in key market segments High quality product of
Slide 14: Strategically aligned M&A opportunity
g Boral’s strategy Delivering gy Acquisition of Headwaters is aligned with Boral’s stated M&A strategy Boral objective Expected impact of Headwaters acquisition Increases Boral’s exposure to the USA building and construction markets, which are Diversify market experiencing positive momentum expo
Slide 15: Strategic rationale
g rationale Strategic Strategically compelling acquisition transforms Boral, better positioning the Group to deliver more sustainable growth and above cost of capital returns through market cycles 01 A transformative step for Boral 02 Strong strategic fit with Boral’s existing USA business 03 Signif
Slide 16: Transaction summary
Transaction summaryy Binding agreement to acquire 100% of NYSE listed Headwaters Incorporated (Ticker: HW.US) for an all cash price of US$24.25 per share, implying an enterprise value of US$2.6 billion1 Transaction Implied acquisition multiple of approximately 10.6x enterprise value / Adjusted E
Slide 17: Overview of Headwaters
Overview of Headwaters NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 18: Overview of Headwaters
Overview of Headwaters Headwaters is a leading manufacturer of building products and one of the largest marketers of fly ash in the USA construction materials market Operates through two core divisions1 Headwaters has 125 operating locations across North America — Building Products designs, manufa
Slide 19: Headwaters divisional overview
Headwaters divisional overview Headwaters has two core divisions, Building Products and Construction Materials Building Products Construction Materials 65% of revenue1 34% of revenue1 Siding & Trim Stone Block Windows Roofing Fly ash % of FY16PF revenue (US$1.1b)1 18% 14% 11% 11% 10% 34% O Overview
Slide 20: Headwaters financial overview
Headwaters financial overview Headwaters has delivered strong margin expansion across its two core divisions Pro forma revenue (US$m)1,2 Pro forma Adjusted EBITDA (US$m)1,2,3 2184 1,078 995 191 877 92 370 159 352 81 309 67 697 148 623 127 558 109 FY14 FY15 FY16 FY14 FY15 FY16 Pro forma Adjusted EBIT
Slide 21: Strategic rationale
Strategic rationale NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 22: A transformative step for Boral
p for Boral 1. A transformative step Acquisition of Headwaters transforms Boral’s USA business, resulting in three strong divisions, with Boral well positioned for growth and improved performance FY16PF revenue Division Key strengths Pre transaction Pro forma Shareholder value 11% • Leading, integra
Slide 23: Re-weights portfolio to higher margin USA business
p for Boral 1. A transformative step Re-weights Boral’s portfolio to a scaled and higher margin USA business with greater diversity in end markets Pro forma Boral divisional FY16 EBIT vs EBIT margin1,2 Pro forma FY16 revenue by end market Other 16% 9% USG Boral (100% basis)3 Australia A t li USG Bor
Slide 24: Exposure to large addressable USA markets
p for Boral 1. A transformative step Significantly increases Boral’s exposure to large addressable USA building and construction markets, which are experiencing positive momentum USA New Residential: 45% of combined USA revenue1 USA Residential Repair & Remodel: 20% of combined USA revenue2 2,036 34
Slide 25: More diverse and growing end markets
p for Boral 1. A transformative step With increased exposure to more diverse and growing end markets, Boral will be better positioned to deliver more sustainable growth and improved earnings Pre transaction1 Pro forma1,2 Expected impact Other Other R&R 4% 8% 12% R&R Boral USA Increased Non- Non 20
Slide 26: Strong strategic fit with Boral's existing USA business
g strategic 2. Strong g fit with Boral’s existing g USA business Combination of complementary businesses establishes leading positions in key market segments and adds significant scale to Boral’s USA footprint, with pro forma combined revenue of US$1.8 billion FY16 revenue (US$m)1,2 Boral USA Headwa
Slide 27: Complementary geographic coverage
g strategic 2. Strong g fit with Boral’s existing g USA business Headwaters adds significant scale to Boral’s USA footprint with complementary geographic coverage West Northeast Roofing 8 2 NORTH Stone 2 Stone 1 4 EAST Siding 2 Fly ash terminal 1 10 Fly y ash terminal 6 Fly ash sources MIDWEST Fly a
Slide 28: Significantly scales Boral's fly ash business
g y scales Boral’s fly 3. Significantly y ash business Creates a national fly ash platform with pro forma revenue of over US$450 million, more efficient customer service and exposed to increased infrastructure spend in the USA Combined fly ash position Combined fly ash sources and storage terminals3
Slide 29: Cement demand drives fly ash demand
g y scales Boral’s fly 3. Significantly y ash business Cement consumption in ready mix is expected to drive a significant increase in fly ash demand; fly ash remains competitively priced against cement Cement demand (millions of tons)1 Cement and fly ash pricing2 2.9 160% 200 Non-Building (infrastru
Slide 30: Accelerates light building products platform
4. Accelerates development of Boral’s light building p products p platform Transforms Boral’s light building products platform in the USA from a narrow offering into a diverse platform of attractive niche products Boral’s existing light building products platform Combined light building products bus
Slide 31: Light building products offering and locations
4. Accelerates development of Boral’s light building p products p platform Headwaters delivers geographic breadth and creates a diverse platform of attractive niche products, enabling Boral to service the full spectrum of high and low end housing Combined light building products offering Combined li
Slide 32: Large addressable light building products segments
4. Accelerates development of Boral’s light building p products p platform Boral’s light building products business will comprise a broader set of early-stage products with access to large addressable markets Building products life cycle Large addressable US$5.8b light building products segments1 Ea
Slide 33: Substantial synergies and FY2017 EPS accretion
5. Substantial synergies and FY2017 pro forma EPS accretion Financially compelling acquisition for Boral’s shareholders, with opportunity to realise substantial synergies and FY2017PF EPS accretion EPS accretive on a pro forma FY2017F NPATA basis1 EPS accretive — High single digit using synergies
Slide 34: Synergies by business unit and source
5. Substantial synergies and FY2017 pro forma EPS accretion Anticipated synergies in year four of approximately US$100 million per annum will come from highly complementary businesses and SG&A overhead savings Synergies by business unit and source (US$m) ~US$100 million per annum within four years C
Slide 35: Synergy phasing and implementation costs
5. Substantial synergies and FY2017 pro forma EPS accretion Significant synergies expected to deliver phased benefits from year one Expected synergy sources and implementation costs Targeted synergy realisation timeline Year 1 2 3 4 Support function efficiencies and SG&A SG&A share capabilities ov
Slide 36: Integration
Integration NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 37: Integration plan
g Integration p plan Boral has a strong track record of integrating, extracting improved operational performance and realising synergies from joint ventures and business combinations Integration objectives David Mariner President & CEO, Boral USA David Mariner joined Boral in 2010 Synergy captur
Slide 38: Common focus on safety
Common focus on safetyy Boral and Headwaters share a common commitment to improving safety performance, which will remain a focus during the integration period and beyond Boral injury rates1 Headwaters injury rates 22.2 21.0 n hours) njuries per million hours) 17.4 12 3 12.3 14 9 14.9 njuries per mi
Slide 39: Transaction funding
Transaction funding NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 40: Transaction funding and terms
g and terms Transaction funding Key y transaction terms Purchase price Total consideration of US$2,564 million, equivalent to ~A$3,512 million1 Acquisition funded by: — Fully underwritten A$450 million institutional placement, launched today Funding — Fully underwritten, pro-rata, accelerated, r
Slide 41: Equity raising details
q y raising Equity g details Fully underwritten Placement and 1 for 2.22 pro-rata accelerated renounceable Entitlement Offer with retail rights trading to raise Offer structure approximately A$2.1 A$2 1 billion and size Approximately 429 million New Shares to be issued (equivalent to approximate
Slide 42: Equity raising timetable
q y raising Equity g timetable Event Date1 Trading halt and announcement of the Acquisition, Placement and Institutional Entitlement Offer opens Monday, 21 November 2016 Institutional Entitlement Offer closes Tuesday, 22 November 2016 Institutional shortfall bookbuild Wednesday, 23 November 2016 Tra
Slide 43: Pro forma balance sheet
Pro forma balance sheet Boral will target a net debt to EBITDA ratio of ~2.5x following transaction close Boral as at 30 Boral announced Headwaters as at Acquisition Pro forma A$m June 20161 divestments / JVs2 30 September 20163 adjustments4 combined group Cash and cash equivalents 452 127 89 (575)
Slide 44: Trading update and summary
Trading update and summary NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 45: Boral FY2017 outlook
Boral FY2017 outlook FY2017 guidance as per AGM – Boral’s FY2017 EBIT is expected to be higher than the EBIT delivered in FY2016 Stronger pricing and increasing infrastructure volumes should deliver benefits in 2H FY2017 ~$6.5m lower equity earnings in FY2017 than FY2016 due to the divestment of
Slide 46: Summary
Summaryy Acquisition of Headwaters is aligned with Boral’s stated M&A strategy Boral objective Expected impact of Headwaters acquisition Increases Boral’s exposure to the USA building and construction markets, which are Diversify market experiencing positive momentum exposures beyond Diversifi
Slide 47: Additional information
APPENDIX Additional information NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 48: Boral will have access to new addressable markets
Boral will have access to new addressable markets Headwaters expands Boral’s opportunities in large addressable target markets in the USA USA cladding and exterior market USA pitched roof market Total USA market size: US$48b1 Total USA market size: US$15b2 Market in which Markets in which B Boral l
Slide 49: Fly ash background
Flyy ash background g Utilities’ coal combustion produces fly ash Utilities Utiliti Coal b i 1 C l basins Coal C l fired l t 1 fi d power plants Class C Ash Class F Ash Coal Basin Coal Plant Coal makes up ~33% of total fuel for energy Fly ash captured in “bag house” of utility generation in the US
Slide 50: Fly ash marketer's role
Flyy ash marketer’s role Marketers serve two customers: 1) utilities - motivated by low cost electricity production; 2)) end user - focused on q quality, y cost, and availability y 01 Utilities 02 End users Utility Marketer Marketer End user Electricity demand Quality material Supply / freight Consi
Slide 51: Multiple applications for fly ash
p applications Multiple pp y ash for fly Boral has four key areas for growth; cement/ready mix represents the largest opportunity while engineered products provide significant upside Applications Market opportunity Cement and Ready y Mix Cement substitute in readyy mix;; upside p opportunity pp y
Slide 52: Headwaters FY16 pro forma EBITDA bridge
APPENDIX Headwaters FY16 pro forma EBITDA bridge NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 53: Headwaters FY16 pro forma EBITDA bridge
Headwaters FY16 p g pro forma EBITDA bridge Headwaters reported Adjusted EBITDA of approximately US$190 million for the year ended 30 September 2016; pro forma Adjusted EBITDA of approximately US$218 million reflects a full year of ownership of the Krestmark windows business, which was acquired by H
Slide 54: Summary of key merger agreement terms
APPENDIX Summary of key merger agreement terms NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 55: Summary of key merger agreement terms
Summaryy of keyy merger g agreement g terms Provision Description Structure An indirect wholly owned subsidiary of Boral will merge with and into Headwaters, with Headwaters surviving the merger and becoming an indirect wholly owned subsidiary of Boral Merger Consideration US$24.25 per share in
Slide 56: Key risks
APPENDIX Key risks NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 57: Key risks
Keyy risks This section discusses some of the key risks associated with an investment in shares in Boral. These risks may affect the future operating and financial performance of Boral and the value of Boral shares. The risks set out below are not listed in order of importance and do not constitute
Slide 58: Key acquisition risks
Keyy acquisition q risks Risk Details Completion risk, There is a risk that the acquisition may not complete on the current terms and expected timing, if at all, due to among other factors a failure to satisfy any including regulatory of the conditions precedent to the merger agreement, which includ
Slide 59: Key acquisition risks
Keyy acquisition q risks Risk Details Future earnings and Boral has undertaken financial and business analysis of Headwaters in order to determine its attractiveness to Boral and whether to pursue the acquisition acquisition. To the extent that the actual results achieved by Headwaters are weaker th
Slide 60: Key acquisition risks (cont.)
Keyy acquisition q risks ((cont.)) Risk Details Debt funding and Boral has entered into financing arrangements pursuant to which financiers have agreed to provide up to US$1.2 billion of debt financing for the refinance risk Headwaters acquisition, subject to the terms and conditions of an up to two
Slide 61: Key acquisition risks (cont.)
Keyy acquisition q risks ((cont.)) Risk Details Headwaters Headwaters’ CCP operations and its customers and licensees are subject to US federal, state, local and international environmental regulations that environmental, health impose limitations on the discharge of pollutants into the air and wate
Slide 62: Key acquisition risks (cont.)
Keyy acquisition q risks ((cont.)) Risk Details Headwaters regulatory In April 2015, the US Environmental Protection Agency (EPA) published a final rule to regulate the disposal of coal combustion residuals as solid (non- risk - coal combustion hazardous) waste under subtitle D of RCRA that became e
Slide 63: Business risks
Business risks Risk Details Boral is involved in Boral’s financial performance is closely tied to the performance of the housing, industrial and commercial construction markets and to general levels of cyclical industries and infrastructure activity. These markets are cyclical and are affected by a
Slide 64: Business risks (cont.)
( ) Business risks (cont.) Risk Details Competition Boral operates in competitive markets, against domestic suppliers and in some cases imported product suppliers, some of which have less debt and greater access to capital. The competitive environment can be significantly affected by local market fo
Slide 65: Business risks (cont.)
( ) Business risks (cont.) Risk Details Joint ventures Boral is a party to joint ventures and accordingly is subject to joint venture risks, which include devolved management control and disagreements with joint venture partners regarding operational and financial matters. Where a joint venture part
Slide 66: Share and Offer risks
Share and Offer risks Risk Details Risks associated with There are general risks associated with investments in equity capital such as Boral shares. The trading price of Boral shares may fluctuate with an investment in movements in equity capital markets in Australia and internationally. This may re
Slide 67: Share and Offer risks (cont.)
( ) Share and Offer risks (cont.) Risk Details Underwriting risk Boral has entered into an underwriting agreement under which Citigroup Global Markets Australia Pty Limited, J.P. Morgan Australia Limited and Macquarie Capital (Australia) Limited (together, the “Joint Lead Managers”) have agreed to f
Slide 68: Share and Offer risks (cont.)
( ) Share and Offer risks (cont.) Risk Details Risks associated with Prices obtainable for retail entitlements may rise and fall over the entitlements trading period. If you sell your entitlements a one stage in the retail renouncing retail entitlements trading period, you may receive a higher or lo
Slide 69: General risks
General risks Risk Details Transaction risk Boral’s strategy includes pursuing acquisitions and disposals. There is a risk that these may not always create value for shareholders or that acquisition targets will be available on commercially reasonable terms. Also, Shareholders’ interests may be dilu
Slide 70: General risks
General risks Risk Details Legislative and Changes in the structure and regulation of the industries in which Boral operates in Australia and elsewhere could materially affect Boral and its business. regulatory changes Boral is subject to environmental laws and regulations, occupational health and s
Slide 71: General risks
General risks Risk Details Information Boral relies upon information technology to support various aspects of its business. There is a risk that information technology failure, security breaches or technology cyber-attacks could result in disruptions to Boral’s business operations or unauthorised ac
Slide 72: International Offer restrictions
APPENDIX International Offer restrictions NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 73: International Offer restrictions
International Offer restrictions This document does not constitute an offer of entitlements ("Entitlements") or new ordinary shares ("New Shares") of the Company in any jurisdiction in which it would be unlawful. In particular, this document may not be distributed to any person, and the Entitlements
Slide 74: International Offer restrictions (cont.)
International Offer restrictions ((cont.)) (b) in an action for damages, the Company is not liable for all or any portion of the damages that the Company proves does not represent the depreciation in value of such securities as a result of the misrepresentation relied upon; and (c) in no case shall
Slide 75: International Offer restrictions (cont.)
International Offer restrictions ((cont.)) Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the Entitlements and the New Shares cannot be distributed (directly or indirectly) to the public by the investors otherwise than in accordance with Article
Slide 76: International Offer restrictions (cont.)
International Offer restrictions ((cont.)) Exemption Notice 2013. Other than in the Entitlement Offer, the New Shares may only be offered or sold in New Zealand (or allotted with a view to being offered for sale in New Zealand) to a person who: is an investment business within the meaning of claus
Slide 77: International Offer restrictions (cont.)
International Offer restrictions ((cont.)) Switzerland The Entitlements and the New Shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange ("SIX") or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared
Slide 78: International Offer restrictions (cont.)
International Offer restrictions ((cont.)) United States Not for release or distribution in the United States of America This document may not be released or distributed in the United States. This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities in