Seven Group poised to gain 100 percent ownership of Boral

About Seven Group Holdings Limited

Seven Group Holdings Limited (Seven, the Group, ASX: ‘SVW’) is a leading Australian diversified operating and investment Group employing 15,000 people across 5 core businesses in the Industrial Services, Energy and Media sectors. The Stokes family own about 57 percent of Seven Group. These businesses and investments include WesTrac, the 100 percent owned sole authorised Caterpillar dealer in WA, NSW and ACT; Coates which is also 100 percent owned and is the largest provider of equipment solutions in Australia and 82 percent of Boral which is Australia’s largest, integrated construction materials supplier. The Group also owns 30 percent of Beach Energy, a mid-tier energy exploration and production company; and 40 percent of Seven West Media, one of Australia’s largest multi-platform media companies, including Seven Network and The West Australian newspaper.

Seven Group moves to 82.4 percent of Boral

Three years ago, the Stokes’ controlled Seven Group owned just 23 percent of Boral, and publicly announced its intention to buyout the remaining 77 percent of Boral shares it doesn’t own. Now at 82.4 percent ownership, Seven appears certain to successfully close out its takeover bid within the next few months with their increased cash component of the Offer price to $1.70 cash, in addition to the 0.1116 Seven Group shares for each Boral share.

The remaining minority Boral shareholders presently owning 17.6 percent of the construction and building materials supplier have little or no other choice but to sell their remaining shares to Seven Group. This is because Seven intends to de-list Boral from the ASX, effectively taking away any share trading liquidity for Boral shares, resulting in a ‘liquidity discount’ for the stock price. Seven have pointed out that de-listing Boral may materially reduce liquidity in trading of Boral shares and adversely affect the ability to dispose of Boral shares in the future. Seven have justified their intention to de-list Boral from the ASX by stating this action will save about $3 million per annum of listing and corporate costs.

Seven have also stated that it is their intention that Boral will not pay any future shareholder dividends to shareholders beyond the fully franked 26 cents cash per share payable on 24 April.

Another important consideration for Boral shareholders in deciding to sell into Seven’s bid is because Seven has reached the 80 percent scrip-for-scrip Capital Gains Tax rollover relief threshold. This now enables Boral shareholders to receive scrip-for-scrip CGT rollover relief on the scrip component of Seven’s Scrip Consideration. This eligibility extends to Boral shareholders who accepted the bid prior to Seven meeting the 80 percent share ownership threshold.

The Independent Board committee established by Boral to assess the fairness of the Seven Offer have now recommended the Seven Offer to Boral shareholders and the Independent Expert appointed by the Boral Board to advise on the Offer terms has concluded that the Seven Offer is reasonable.

Finally, now that Seven have declared their Offer to Boral shareholders as ‘Best and Final’, Seven are precluded from increasing their Offer terms to Boral shareholders.

The window for remaining Boral minority shareholders to cash their shares is closing and Seven’s intention to de-list Boral from the ASX virtually ensures that the rate of acceptances of Seven’s cash and scrip Offer will pick-up in the weeks ahead and soon move to the 90 percent compulsory acquisition threshold of the remaining 10 percent of Boral shares.

What’s next?

Boral is an attractive acquisition for Seven given Boral’s exposure to the growing infrastructure and construction sectors in Australia where the development pipeline is estimated at $1.7 trillion over the next 7 years. This makes Boral a highly complementary fit for Seven Group’s existing Industrial services businesses. Other benefits are the increased free float of Seven Group shares and the larger market capitalisation that increases Seven’s index weighting, attracting index-hugging investors to the stock.

Seven Group has stated its intention to pay a fully franked dividend of 30 cents per share which, based on Seven’s scrip Offer to Boral shareholders, is equivalent to 3.3 cents cash and 1.4 cents in franking credits per Boral share. However, only Boral shareholders who accept the Seven Offer before the Offer closing date and hold their Seven Group shares at the Dividend Record Date for the Seven Group dividend will receive this cash payment.

Seven’s Offer to Boral shareholders is higher than any closing price at which Boral have traded since 2007. Seven Group have a history of exceeding earnings guidance and have achieved a 22 percent compound annual growth rate in its Industrial Services EBIT in the seven-year period to June 2023. Seven’s consistent earnings and dividend history and proven operating model should be financially rewarding to Boral shareholders who accept the cash and scrip Offer as the Offer moves to its concluding phase in the next couple of months.