It is a fair bet that the Stokes father-and-son tag team has become a victim of its own success having now received acceptances for 50 per cent of Boral. Clan Stokes didn’t need this level of ownership to exert control over the building materials company but it’s paid for it anyway.
Stokes’ Seven Group could have exercised most of the influence it has now paid for with even a 30 per cent stake and certainly with a 40 per cent holding.
But there is a combination of art and science to a takeover in which the bidder wants only limited acceptance. Seven wanted a goldilocks outcome but it didn’t get it.
Kerry and Ryan Stokes’ Seven Group has the numbers to control Boral.Credit:Melissa Adams
The $6.50 per share it initially offered wasn’t enough to entice sufficient shareholders over the line but the $7.40 final offer price was arguably too generous for many shareholders to ignore.
Boral’s own board had a hand in forcing Seven to lift the offer but engaging in an $850 million buyback – effectively bidding against Seven for Boral shares.
That said, Seven’s corporate manoeuvre should still receive a trophy for success. It has spent about $3 billion for 50 per cent (or more) of a company that has $3.4 billion in surplus cash and will have an additional $1 billion to $1.5 billion when it sells the US fly ash business that it’s currently spruiking.
The $2.5 billion that Seven could potentially receive when Boral hands the majority of the excess cash back to shareholders makes this a masterful deal for Stokes.
Having control of Boral gives the Stokes team the combination to its safe.
And one would have to think that any of Boral’s previous plans to undertake a second share buyback would be scratched under Seven’s direction.
Make no mistake Kerry and Ryan Stokes will be firmly in control even after Seven’s olive branch that Boral will retain a majority of independent directors.
For starters, Seven will want its own representative as the chairman of Boral. And putting that in place shouldn’t take long given the current chairman, Kathryn Fagg, already has one foot out the door and fellow director, Paul Rayner, has indicated his readiness to go.
The betting is that Ryan Stokes will take the big seat at the head of the board table and Seven’s CFO Richard Richards will sit at his right hand. There may also be room for another Seven representative.
And with two or three representatives on the board, Seven will have a big say on which independent directors will be appointed in the future.
Needless to say some of the current non-executive independent directors may not find sitting on Boral board as appealing as they did pre-Stokes. Rob Sindel was widely speculated to replace Fagg as chairman. Large institutional shareholders had been pushing for Sindel – a former chief executive of CSR – to lead the board. This now looks unlikely.
The is no suggestion that Boral’s current chief executive Zlatko Todorcevski is under any threat of removal.Credit:Peter Braig
Seven will also have a hefty input into who runs Boral. At this stage there is no suggestion that Boral’s current chief executive Zlatko Todorcevski is under any threat of removal. And this will probably remain the position as long as he executes the turnaround plan that was promised.
The asset sales already announced by Todorcevski are a good start but the hard yards of improving the performance of the Australian assets is a longer dated exercise and carry some execution risk.
But given Seven’s average entry price for Boral shares sits at close to $5 per share, the risk would be mitigated.
But for those that retain their Boral shares, there is an additional layer of uncertainty. Stokes has a history of moving assets around inside the companies he controls.
Those that remain on the register face the prospect that its share price will fall after the offer period elapses in two weeks even though the spectre of a capital return remains.
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