ABC Supply has agreed to acquireUSG's building product distribution business, L&W Supply Corp., for total cash consideration of $670M.
The transaction will allow USG to reduce debt and achieve its target leverage ratio, accelerate high return investments in its Gypsum and Ceilings businesses through advanced manufacturing initiatives, and position the company to consider future capital returns to shareholders.
The sale is also expected to dampen USG's overall earnings cyclicality as well as provide opportunity for growth in the independent specialty dealer channel.
USG Corp. (USG +7.1%) shares are sharply higher after the maker of building materials reported better than expected Q4 earnings, citing margin expansion in its gypsum and ceilings businesses, as well as cost discipline.
USG says it sees continued strength in its markets this year, with overall demand improving 5% in most of its key markets, and stresses that it will continue its "relentless cost control program" in 2016.
In its earnings conference call last week, USG peer Eagle Materials (EXP +0.7%) said its gypsum customers were reporting 5%-7% increases in volume needs for 2016.
USG (USG -4.6%) is downgraded to Equal Weight from Overweight with a $29 price target, cut from $33, at Barclays, following disappointing Q4 earnings with a number of unusual items that occupied much of the Q&A on the earnings conference call.
Q4 results came in below consensus, as decent core U.S. drywall and Boral JV results were overshadowed by weakness in GTL shipping, Canada and Mexico, and hedging losses.
CEO James Metcalf wound up answering an inordinate number of questions about ocean shipping - an obscure corner of his business - after USG wrote down the value of its shipping assets by $60M and said it might sell the vessels.