USG, Australia's Boral Form $1.6 Bln JV; USG Sees Q3 EPS, Sales Below View

(RTTNews) - Building materials supplier USG Corp. (USG) agreed Wednesday to form a 50:50 strategic joint-venture with Australian peer Boral Ltd. (BOALY, BLD.AX) to create a world-leading building business named USG Boral Building Products. USG will make a cash payment of up to $575 million to Boral to achieve an interest of 50 percent in the joint venture, which is expected to close by end of January 2014.

Separately, USG also said it expects to swing to profit in the third quarter along with sales growth, but both are below current analysts' expectations.

"The joint venture with Boral, Asia's leading plasterboard manufacturer and distributor, gives USG the reach to immediately expand our world-leading building products operations outside North America, and enables both companies to more effectively capitalize on market opportunities in some of the world's highest growth construction markets," USG's Chairman, President and CEO Jim Metcalf said in a statement.

USG will make an upfront cash payment of $500 million upon forming the joint venture, $25 million will be paid on the 3rd anniversary, and $50 million will be paid on the 5th anniversary, both if joint venture earnings targets have been achieved at that time.

Warren Buffett's Berkshire Hathaway, Inc. (BRKA) is the largest investor in USG, which provides Gypsum wallboard and joint compounds.

The joint-venture will be formed by the merger of Boral's Gypsum division with USG's Asian and Middle Eastern businesses. Boral's Gypsum division includes its plasterboard operations in Australia and Asia.

USG will also provide exclusive access to its ceilings, cement board, fibre board, lightweight plasterboard and joint compound building products technologies in the operating territory of the joint venture.

The $1.6 billion joint venture will be a world-leading plasterboard & ceilings business that will have operations spanning 12 countries across Asia, Australasia and the Middle East. It will also have 633 million meter square of plasterboard manufacturing capacity.

Boral said the joint venture will be value accretive for its shareholders. The joint venture will also generate synergies through manufacturing and freight cost savings as well as by superior product offering and by selling complementary products through existing sales channels.

Boral Gypsum CEO Frederic de Rougemont has been appointed CEO, and USG's Paul Monzella is appointed as CFO of the joint venture. USG will also appoint the Chairman, Jennifer Scanlon, with the right to appoint chairman alternating every two years.

Boral's CEO & Managing Director Mike Kane said, "The transaction is a major step forward for Boral and our vision is to create a world-leading interior linings business in Asia, Australasia and the Middle East. The joint venture strategically aligns with Boral's goal to grow earnings from Asia over the longer-term by effectively leveraging our extensive distribution position with complementary building products and markets."

Separately, USG said it expects to report net income of $23 million or $0.21 per share for the third quarter, compared to a net loss of $29 million or $0.28 per share in the year-ago quarter.

On average, 18 analysts polled by Thomson Reuters expect the company to report earnings of $0.28 per share for the third quarter. Analysts' estimates typically exclude special items.

The company also currently sees quarterly sales at about $925 million, up from $828 million in the year-ago quarter. Fifteen Wall Street analysts currently have a consensus revenue estimate of $939.17 million for the third quarter.

The company attributed the anticipated improvement in year-over-year results to better wallboard price and volume as well as positive operating results at L&W Supply, partially offset by higher selling, general and administrative expense as expected and lower profitability from its shipping company, GTL, due to timing of shipments in the second half of 2013.

USG is scheduled to report financial results for the third quarter of fiscal 2013 on October 24, 2013.

USG closed Wednesday's regular trading session at $27.00, down $0.38 or 1.39% on a volume of 1.89 million shares. The stock lost a further $1.65 or 6.11% in after-hours trading. BOALY last traded at $17.97 on Tuesday.