Owens Corning (OC -8.34%) has agreed to acquire door marker Masonite International (DOOR 34.66%) for a substantial premium to where Masonite has been trading. Investors are celebrating their good fortune, with shares of Masonite up 35% as of 12:30 p.m. ET on Friday.
A new platform for growth
Owens Corning is a maker of a range of building and construction materials, including roofing, insulation, and composites. In Masonite, a maker of interior and exterior doors, Owens Corning sees an opportunity to expand its relationships in the construction industry and create a new growth platform catering to residential builders.
The buyer is paying up for the privilege. Terms of the deal call for Owens Corning to pay $133 per share in cash for Masonite, a premium of 38% to the target’s Feb. 8 close and 46% to its 20-day volume-weighted average price. The deal values Masonite at about $3.9 billion, or about 8.6 times expected adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
“We are excited by this opportunity to add a scalable new growth platform for our company,” Owens Corning CEO Brian Chambers said in a statement. “The combination of our commercial, operational, and innovation capabilities allows us to accelerate our long-term enterprise growth strategy with a clear line of sight to meaningful synergies and increased cash flow generation.”
The deal is expected to close in mid-2024, subject to regulatory and Masonite shareholder approval.
Is Masonite stock a buy after its big deal announcement?
This is a cash transaction at a significant premium, meaning it offers little upside for investors buying in now. Masonite shares jumped to within a few dollars of the takeover price as soon as the transaction was announced, and are likely to fall back significantly should something go wrong and the deal falls through.
For an investor interested in the building products sector, Owens Corning shares could be worth a look. The company is taking on about $3 billion in committed debt financing to do the deal, but the resulting company should be able to pay down that debt quickly.
Owens Corning expects net debt to remain in its target range of between 2 times and 3 times EBITDA, with the company planning to deleverage to 2 times EBITDA by the end of 2024 toward the goal of returning about 50% of free cash flow to shareholders over time.
Should the acquisition and integration proceed as planned, Owens Corning should be well positioned to benefit from continued demand for residential and commercial building materials.