James Hardie Industries plc (ASX: JHX) shares are in focus after announcing a takeover of AZEK.
James Hardie and AZEK are two large building product businesses with a significant presence in the US.
Takeover of AZEK
James Hardie is going to use a mixture of shares and cash to buy the US business.
AZEK shareholders will receive $26.45 cash for each AZEK share they own. This represents around 47% of the total offer.
The offer also includes 1.034 James Hardie shares for each AZEK share owned (53% of the offer) – these new shares will be listed on the New York Stock Exchange.
After the transaction occurs, assuming it goes ahead, James Hardie shareholders will own 74% of the business and AZEK shareholders will own 26% of the business.
The offer by the ASX share represents a 26% premium to the average AZEK share price over the past 30 trading days.
What are the benefits of this tie-up?
James Hardie pointed to a number of benefits about AZEK.
For example, it will increase the company’s exposure to repairs and remodel activities. It’ll expand the total addressable market (TAM) of the business. James Hardie’s products are 93% focused on exteriors and 7% on interiors. AZEK’s products are 74% focused on decking, accessories and rail, and 26% are focused on exteriors.
Almost the entire AZEK business generates earnings (99%) from the US. James Hardie says there are strong long-term US housing fundamentals.
The company thinks there are a lot of synergies between the businesses. It sees at least $125 million of cost synergies and at least $225 million of commercial synergies, with “meaningful upside”.
Once its targeted synergies are achieved, James Hardie thinks it can achieve at least $1 billion of annual free cash flow generation.
The business plans to execute up to $500 million of share repurchases in the 12 months after the closing of the transaction.
Final thoughts on James Hardie shares
This deal has been unanimously approved by the boards of directors of both companies. It’s expected to close in the second half of 2025.
It’s still subject to usual closing conditions, regulatory approvals and AZEK shareholder approval. A vote by James Hardie shareholders is not required for this transaction.
James Hardie has obtained fully-committed financing from Bank of America and Jefferies.
Management seem optimistic about the deal, but the James Hardie share price has taken a sizeable tumble since 18 March 2025. With the US tariffs, shorter-term demand for building products is uncertain, but this could be an appealing time to invest on a 3-year or 5-year time period. We should keep in mind that building products is a cyclical industry.
