Buffett Goes Hostile Against Board Of USG

By Glenn Dyer | More Articles by Glenn Dyer

In a move that will be of considerable interest to local building products giant, Boral, a fight has broken out for control of a key partner, the US gypsum and plasterboard maker, USG as legendary investor Warren Buffett has gone ’hostile’.

USG is resisting a $US6.6 billion bid from German group, Knauf – Buffett’s Berkshire Hathaway is USG’s biggest shareholder with around 31%, holding a stake in the group for more than 17 years. The German group owns just over 10%.

USG’s board and management are resisting the offer and on Thursday, a spokesperson for Buffett said Berkshire will oppose the re-election of some of USG’s directors at the forthcoming annual meeting.

“Berkshire’s present intention is to vote against the four directors proposed by management,” said Debbie Bosanek, an assistant to Mr Buffett was reported as telling the Financial Times.

Knauf and USG have held discussions on a possible takeover since last year but remain divided over a valuation for the company. The talks were made public by Berkshire last month, when Buffett’s group disclosed that it had offered to sell its 31% stake to Knauf. The private German group has offered $US42 a share for USG. Knauf has held a stake in USG for 18 years.

Shares of USG rose 2.4% on Thursday to $US40.77.

“The decision to publicly align Berkshire with opponents of management is a rare manoeuvre for Mr Buffett, who has avoided embarking on hostile takeovers himself,” the Financial Times said.

“In 2017 he (Buffett) was against launching a hostile $143bn bid for Unilever alongside private equity firm 3G Capital after the consumer goods giant expressed opposition to the deal. Earlier this week USG sent a letter to its shareholders saying the push by Knauf was designed to “undermine the board’s ability to maximise value for all stockholders”.

Boral will be interested. While it is not as big as its Australian cement or US operations, USG and Boral has a key role in the building and construction industry in Australia, Asia and the Middle East

Boral and USG merged their plasterboard and gypsum products interests back in 2013 to cover not only Australia, but Asia and the Middle East.

In the six months to December USG Boral delivered $38 million of post-tax earnings to Boral, and underlying Eanings Before iNterest, tax, depreciation and Amortisation result of $149 million,”which was 1% down on the prior corresponding period. The JV’s result was muted by $8 million of one-off costs associated with temporary gypsum supply constraints in Australia and an operational reserve adjustment in India. Excluding these impacts, EBITDA was up 5% with growth in Korea and China and continued strength in Australia. The JV delivered EBITDA margins of 18.3%,” Boral said in February.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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