Berkshire to part ways with USG Upon Knauf’s Takeover

Knauf’s $7 billion takeover

Sources report that Germany’s Knauf KG is on the verge of acquiring USG Corporation in a $7 billion deal. It is reported that the Chicago-based company which was founded in 1902, has consented to Knauf’s $44 per share offer.  Available information reveals that the offer of $44 per share experienced a boost from $42 per share after Berkshire Hathaway Inc. gave an assenting nod to Knauf’s bid.

In a statement released earlier this week, the purchase is a representation of a 31% premium on the price of USG’s stock in March when Knauf made a public disclosure of its intention to acquire the company.

Knauf is on the verge of acquiring USG, Chicago based building materials company, in a billion dollar deal

Berkshire’s opportunity to exit USG

Buffet mentioned that the closing of the deal, which sources reveal will take place early 2019, will give Berkshire Hathaway Inc. an opportunity to opt out of what he referred to as a disappointing investment he made 18 years ago which has suffered bankruptcy and bailout.

Germany’s Knauf, the current owner of about 10% of USG and the second largest shareholder in the corporation, will become a major beneficiary of the company’s financial returns when the deal is finalized.

Berkshire’s 31% stake which makes it USG’s largest shareholder is currently valued at $1.91 billion. Sources report that stockholders will be given $43.50 cash offer while 50 cents per share will be paid as special dividends to each stockholder.

USG Corporation had to make several asbestos litigation settlements in past years which caused it to file for bankruptcy protection sometimes in 2001. Berkshire emerged as its backstop investor in 2006, but Buffet opted out in 2008 and provided the company with funds totaling $300 million which was subsequently converted to shares after the housing market in U.S. experienced an implosion with the credit markets also locking up. Financial analysts stated that Berkshire’s stake in UCG had become too large and the company would have to cut its prices if it wanted to sell its shares in the open market.

If this acquisition pulls through, analysts have stated that it will not only give Knauf ownership of USG but will also give the German company direct access to the U.S. housing market.

Knauf KG officially began operation in 1932, and the company has grown to become one of the world’s largest producers of drylining and insulation systems and are also world acclaimed producers of ready-mix plasters and industrial flooring. The company currently boasts of over 27 thousand employers worldwide and recorded sales of $7.7 billion in 2 years ago.

Buffet pushes for Knauf’s takeover as an avenue to exit USG

History of Knauf’s imminent takeover

Knauf’s quest to acquire USG began last year in November when it first made the $40.10 per share offer which was later boosted to $42 in March. However, USG rejected the $5.9 billion takeover proposal, and media outlets report that the reluctance was because the company deemed Knauf’s offers as grossly inadequate as well as opportunistic.

Reports mentioned that the company regarded Knauf’s offer as opportunistic because it had just begun to enjoy the benefits of the U.S. construction market when the offer rolled in. USG made about $3.22 billion in sales in 2017 which was an increase of about 6.1 percent from 2016. The company also had a workforce of 6,800 employees last year.

Expressing public support for Knauf’s proposed takeover, Berkshire reportedly said sometimes in April that it was willing to cast its vote against USG’s board nominees and mount pressure on USG’s management to accept Knauf’s offer.

USG finally had a change of heart after Berkshire, the company’s largest shareholder, and two major proxy advisory firms suggested voting against four USG board nominees at the company’s annual meeting held on the 9th of May.  Sources stated that 77% of shareholders voted against the four board nominees and as Knauf was left as the only potential buyer, the management was at risk of having its shares drop before the offer became public.

Finally agreeing to go on with takeover talks, USG’s CEO noted that the board had worked diligently to evaluate all its strategic options to maximize values for its shareholders and are delighted to have reached an agreement which will provide its shareholders with significant and certain cash value.

Knauf has expressed intention to keep USG’s headquarters in Chicago and continue to have it managed there after the takeover. The management of the German company also made mention that it would make significant investments in the company.  In a statement by one of the company’s general partners, Alexander Knauf, he stated that the German company greatly admires USG’s strong brands, leading market positions in the North American building industry and highly talented employees.