James Hardie (ASX:JHX) shares have fallen sharply after announcing a US$8.8bn (A$14bn) cash-and-scrip deal to acquire US-based outdoor building products maker AZEK Company (NYSE:AZEK).
AZEK, headquartered in Chicago, specialises in composite decking, railing and outdoor living products under the TimberTech brand. The company generated US$1.5bn in revenue last year, all in North America. James Hardie earns about 75% of its US$3.9bn annual revenue from the same region.
AZEK shareholders will receive US$26.45 in cash and 1.0340 ordinary shares of James Hardie, valuing the offer at US$56.88 per share — a 37.4% premium to AZEK’s last close. Once completed, AZEK shareholders will own 26% of the combined company, which will be listed on the NYSE with a secondary listing on the ASX.
Shares in James Hardie dropped as much as 12% on Monday, hitting $41.16, as investors reacted to the premium paid and the potential dilution of existing shareholders. The sell-off followed a similar pattern seen recently in Australia’s building materials sector, where Boral, CSR and Adbri were all acquired in 2023 after decades on the ASX.
James Hardie CEO Aaron Erter said the acquisition would create a one-stop shop for US contractors and homeowners, combining Hardie’s fibre cement cladding and boards with AZEK’s outdoor offerings.
“Obviously, we believe one plus one equals three here,” Erter said. “This is the right time. As the market recovers, we will be in that much better position to accelerate.”
AZEK chief executive Jesse Singh highlighted long-term growth potential in the composite decking market, noting it accounts for just 25% of the overall decking segment but is expected to grow significantly as consumers move away from timber.
The acquisition is forecast to generate at least US$125m in cost synergies and US$225m in commercial synergies. James Hardie also expects US$350m in additional annual earnings once the deal is fully integrated. It will fund the transaction using debt, supported by a fully committed bridge facility, and plans to repurchase up to US$500m of its own shares after completion.
Despite investor concerns, Erter defended the timing and pricing of the deal, saying both companies had strong records of outperformance regardless of market conditions.
Wilson Asset Management portfolio manager John Ayoub said the terms favoured AZEK shareholders. “You need to be taking a long-term view if you are a James Hardie shareholder because there is no short-term sugar hit,” he said.
The deal is expected to close in the second half of 2025, subject to regulatory approvals. Jefferies advised James Hardie, while AZEK was advised by Goldman Sachs.
