Boral share price (ASX: BLD): where next?

It’s been a busy couple of days for Boral (ASX: BLD).

On Monday, the building and construction materials company announced that it had entered into an agreement with a subsidiary of Westlake Chemical Corporation to sell its North American Building Products business.

Under the deal, Boral said it would sell this business arm for USD$2.15 billion or AUD$2.9 billion, and, due to carried over losses, would not pay income tax off the back of the sale.

As a result of this deal, the company made a few key points about its debt position and treatment of surplus capital.

For one, Boral said post sale, it would reduce its net debt target to AUD$1.3 billion, down from AUD$1.5 billion. Importantly, based on the company’s net debt position as of 31 May, this would result in some AUD$500 million in surplus capital.

Looking at what the company may do with the proceeds from the sale, management noted that the Board was in the process of assessing its options in regards to the potential distribution of any surplus capital.

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Seven’s takeover offer in focus

While the sale of Boral's North American assets is significant, on Tuesday Boral’s management updated the market in regards to Seven Group Holdings’ off market takeover bid for the company.

As part of a statement released to the ASX, it was revealed that Seven had dropped all conditions relating to its takeover bid for Boral.

Despite loosening the terms of the deal, Boral’s Independent Board Committee continues to implore its shareholders to both reject and/ or take no action in regards to the takeover offer. The offer, which values Boral at $6.50 per share – undervalues the company according to Boral management.

Centrally, Boral’s Board highlighted the sale of the company’s North American Building Products business as one of the key reasons why the SGH deal undervalues the company, saying:

‘The sale is expected to generate significant surplus capital once the transaction closes. Based on Boral's financial framework, we estimate this surplus (prior to any reinvestment alternatives) to be ~$3.6 billion which equates to $3.02 per share.'

Management further added that 'The Company will determine the appropriate form of any return to shareholders, which may involve further shareholder approvals.'

Boral share price remains elevated

A cursory glance would indeed suggest that the offer undervalues the stock – at least in so far as what market participants are currently willing to pay for Boral – with the stock opening Tuesday’s session at $7.01 per share.

The Boral share price has risen ~43% in the last six months.