BRK.A Berkshire Hathaway Inc

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)

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