Boral’s A$840 million takeover bid for cement and lime producer Adelaide Brighton was on shaky ground, with the nation’s competition watchdog unlikely to give it the go ahead, an analyst said. Commonwealth Securities analyst Graeme Woodbridge said the Australian Competition and Consumer Commission (ACCC) would oppose Boral’s acquisition of Adelaide Brighton on fears it would lessen competition in the cement market.
In early January, Boral upped its takeover bid for Australia’s largest cement and lime producer to A$1.60 per share, from the initial A$1.55 offer made in December last year. Boral has said the acquisition would extend its geographic presence in Australia, providing it with increased exposure to the Australian cement industry. But, Mr Woodbridge said the deal would lessen competition, especially within the Victorian cement market. "The ACCC will find that the proposal will lessen competition in the Victorian cement market," Mr Woodbridge said.
"Currently three manufacturers supply the Victorian market, Boral, Cement Australia and Adelaide Brighton. If Boral acquires Adelaide Brighton, Boral’s share of the Victorian market will increase from 34 per cent to 67 per cent and the share of the two largest manufacturers will increase from 67 per cent to 97 per cent. "This is a significant increase in concentration". Mr Woodbridge said the only way around the issue would be for Boral to divest Adelaide Brighton’s Birkenhead cement plant in Adelaide. But, that move would substantially reduce the value of the acquisition to Boral, he said.
Estimates showed the Birkenhead plant generates around 25 per cent of Adelaide Brighton’s earnings before interest, tax depreciation and amortisation, Mr Woodbridge said. Boral has indicated that it would be prepared to divest selected concrete masonry assets in South Australia, Victoria and NSW if required to do so by the ACCC. It also said it intends to delist Adelaide Brighton if the takeover was successful and integrate Adelaide Brighton’s cement manufacturing, clinker grinding, cement distribution and lime production and distribution businesses into Boral’s cement division. Boral is due to release its half year results on Tuesday, with analysts looking for an upgrade to the group’s full year net profit guidance of around A$320m