Fibre-cement maker James Hardie Industries said it will buy U.S. artificial decking maker AZEK for $8.75 billion, sending its shares tumbling amid analysts' concerns of overpaying for exposure to a sputtering U.S. housing market.

The cool reaction to the buyout shows a sense of caution among investors about a firm widening its footprint in the U.S., where new housing stock is near a two-decade high and tariffs and an immigration crackdown under President Donald Trump are seen as likely to slow construction further.

AZEK shareholders will get $26.45 in cash and 1.034 James Hardie shares for each AZEK share, bringing the total price to $56.88 per share, a 37.4% premium to the target's close on Friday.

AZEK's board supports the offer, which would result in James Hardie and AZEK shareholders owning about 74% and 26% respectively, the companies said. AZEK makes composite decking, pergolas and other outdoor living products.

James Hardie's Australian-listed shares fell 15% on Monday, while the S&P/ASX200 was flat, as analysts worried the price was on a higher earnings multiple than other deals in the sector.

The deal carried "a heavy premium and elevated multiple," said Morgan Stanley analysts. "We expect that the market will be skeptical of revenue synergy targets."

The company said it expected to achieve at least $350 million worth of additional earnings once the deal was complete. It forecast $125 million of cost savings from the deal.

Barrenjoey analysts said the premium meant "full synergy realisation as well as strong underlying growth for both businesses is needed to justify the transaction".

The deal is the third in a year in the U.S. building products sector, including Beacon Roofing Supply agreeing last week to an $11 billion buyout from QXO.

"There is a changing landscape in the U.S. building products industry," James Hardie CEO Aaron Erter told Reuters. "You have seen consolidation, and we believe that is only going to continue. We have set up a stronger company by joining with AZEK, being able to get on whatever a changing landscape gives us."

Tariffs ordered by U.S. President Donald Trump plus labour shortages linked to his immigration crackdown are expected to push up costs while curtailing demand, economists say.

A slump in sales of new homes meanwhile pushed inventory in January to the highest since 2007, government data showed, cooling demand for new building starts.

Against that backdrop, shares of AZEK have slumped 23% from a record high close on December 11 of $54.76. The buyout equity value is 4% higher than that peak.

The price tag includes AZEK's $386 million of net debt, James Hardie said.

The combined company's shares will be listed on the New York Stock Exchange with its Australian chess depositary interest (CDI) listing remaining in place, it said in a statement.

James Hardie was founded in Australia but is now headquartered in Ireland with its management team based in Chicago.

The firm said it intends to fund the cash portion of the transaction through debt financing.

(Reporting by Scott Murdoch and Byron Kaye in Sydney, Shivangi Lahiri in Bengaluru; Editing by Chris Reese and Sonali Paul)


Reuters