USG Deal Offers Exit for Buffett -- WSJ
June 12 2018 - 3:02AM
Dow Jones News
Knauf to pay $7 billion for Sheetrock maker; Sale lets Berkshire
sell without affecting stock
By Nicole Friedman and Robert Barba
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (June 12, 2018).
USG Corp. agreed to be acquired by Germany's Gebr. Knauf KG for
$7 billion, capping months of deal talks between the two
building-materials firms and USG's largest investor, Warren
Buffett's Berkshire Hathaway Inc.
Under the deal announced Monday, Knauf will pay USG shareholders
$43.50 a share in cash. Shareholders would also receive a
50-cent-a-share special dividend after they approve the
transaction.
The deal was a success for Berkshire, which strayed from its
typically passive investment approach and pressed USG to enter
negotiations. Berkshire owns 31% of the Chicago-based maker of
Sheetrock gypsum drywall. Berkshire purchased its USG stake at an
average cost of about $19 a share, according to Mr. Buffett's 2016
shareholder letter.
Berkshire has held USG shares for almost 20 years, and Mr.
Buffett said in 2017 that the investment has been disappointing.
The sale to Knauf allows Berkshire to sell its stake without
pushing down USG's stock price.
Knauf, which already owns an 11% stake in USG, first offered
$40.10 a share, then returned in March with a bid of $42 a share.
At the time, USG said the offer substantially undervalued the
company and analysts speculated that Knauf would likely raise the
offer.
Shareholders voted against the election of four directors to the
USG board in May. It marked the first time in Mr. Buffett's memory
that his conglomerate has opposed a company's slate of nominees, he
said last month. Mr. Buffett has long said he won't participate in
hostile takeovers.
In the case of USG," we did not think that the directors were
essentially doing their job," Mr. Buffett said on CNBC last
month.
Shares in USG rose 3.8% as of midday Monday.
In prepared remarks, USG Chief Executive Jennifer Scanlon said
the board "has worked diligently to evaluate all strategic options
to maximize value."
USG, which was founded in 1902, has a turbulent history due to
asbestos litigation. The company filed for bankruptcy twice within
a decade, first in 1993 and again in 2001. Berkshire backstopped a
USG stock sale in 2006. Two years later during the housing bust,
Berkshire invested $300 million in USG using convertible notes.
"Eighteen years from the time we bought the first stock and 12
years from the time we, in, effect, bankrolled the company in terms
of coming out of bankruptcy, we've never received a dividend," Mr.
Buffett said on CNBC in May. "The earnings estimates, the new
products, and that sort of thing, have fallen short."
Berkshire in 2014 agreed to pay a nearly $900,000 penalty to
settle U.S. allegations it violated antitrust laws by failing to
report the acquisition of an equity stake in USG. The issue came
when Berkshire converted notes it had purchased from USG into
equity.
Write to Nicole Friedman at nicole.friedman@wsj.com
(END) Dow Jones Newswires
June 12, 2018 02:47 ET (06:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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