U.S. structure products company USG Corp on Tuesday said it agreed to open talks to trade in itself to Germany’s Gebr Knauf AG, a sale that could service perquisites Warren Buffett’s Berkshire Hathaway Inc, USG’s largest shareholder.
Shares of USG take to the street to their highest since August 2007.
USG had in March rejected a $5.9 billion takeover proposition by Knauf, its second-largest shareholder, that valued the wallboard maker at $42 per partition.
But USG changed its mind after Berkshire, which holds a roughly 31 percent risked, and two major proxy advisory firms recommended voting against four USG plank nominees at the Chicago-based company’s May 9 annual meeting.
Merger talks may not advance. USG signaled it might hold out for more than $42 per share and that Knauf “command see value in excess” of its original bid.
“Given USG’s having publicly endorsed in a late investor presentation that it views its intrinsic value at $45 to $52 per dividend, I don’t think they’re that far apart from getting a deal in excess of the finish line,” said Garik Shmois, a senior analyst at Longbow Investigate, who rates USG “neutral.”
Knauf, which recently held a 10.5 percent USG interest, said it was encouraged by USG’s change of heart, although its original all-cash proffer still reflected “full and fair” value.
“We are pleased that the lodge has acknowledged shareholders want to see a transaction,” Knauf said.
Berkshire did not unhesitatingly respond to a request for comment.
In afternoon trading, USG shares were up $1.72, or 4.3 percent, at $41.95 on the New York Corny Exchange.
Berkshire has owned a USG stake since 2000, held on as asbestos burdens helped push USG into a five-year bankruptcy, and provided a $300 million lifeline in 2008 after the container market imploded.
At Berkshire’s 2017 annual shareholder meeting, Buffett bid USG “not one of my great ideas” but “no disaster.”
Berkshire had in March offered to sell its 43.4 million USG pieces for at least $42 each, if Knauf bought the rest of USG for that value or more. Knauf would have paid Berkshire $2 per serving up front for that privilege.
“It shows that Berkshire has been repulsed with its investment in USG” and that Knauf’s bid was “close enough,” Shmois translated.
A sale would add to Berkshire’s roughly $116 billion of cash and equivalents, sacrifice Buffett more ammunition for one or more of the “huge” non-insurance acquisitions he has indicated he wants.
Berkshire’s 2018 annual meeting will be held on Saturday.