Boral Limited (ASX: BLD) shares have been building some sort of momentum since the pandemic. And its decision to sell its North American Building Products business has pushed the Boral share price higher today.
BLD share price
Details behind the sale
Boral has entered into an agreement to sell its North American Building Products business to a subsidiary of Westlake Chemical Corporation (NYSE: WLK).
What’s the North American Building Products business?
This segment has operated in the USA for more than 40 years and covers the following key products, Roofing, Stone, Light Building Products and Windows.
In its FY20 results, this business generated $2.3 billion in revenue, equating to around 27% of total revenue.
Boral has agreed to sell it for US$2.15 billion or AU$2.9 billion and the proceeds will enable it to reduce its net debt target from AU$1.5 million to AU$1.3 million.
The company notes the sale price exceeds the US$1.8-US$2.0 billion valuation range produced by an independent expert.
The Fly Ash business will be the only remaining segment from North America as Boral continues to mull over what to do with it.
What lies ahead for Boral?
Management is being prudent in a challenging environment as it plays defence rather than offence.
The North American Building Products business has added significant value to the Boral business, providing it with a strong presence in North America.
Given the US government announced plans to increase spending on construction, this decision does come as a bit of a surprise.
Whilst it’s important to maintain a sound financial balance sheet, it’s also integral to strengthen its competitive advantage. I prefer to find businesses that constantly widen and deepen their moat over the long run.
Boral’s management team advised it will distribute a dividend once reinvestment opportunities have been considered.
I would want to understand what reinvestment opportunities management are considering and determine how these stack up against the sell-off.
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