Owens Corning Buying Masonite For $3.9 Billion: Details

By Amit Chowdhry ● Feb 9, 2024

Owens Corning (a leader in global building and construction materials) and Masonite International (a leading global provider of interior and exterior doors and door systems) announced they have entered into a definitive agreement under which Owens Corning will acquire all outstanding shares of Masonite for $133 per share in cash, representing an approximate 38% premium to Masonite’s closing share price on February 8, 2024 and an approximate 46% premium to Masonite’s 20-day volume-weighted average price.

The implied transaction value is approximately $3.9 billion, implying a purchase multiple of approximately 8.6x 2023E adjusted EBITDA or 6.8x when including synergies of $125 million.

Adding Masonite’s market-leading doors business sets up a new growth platform for Owens Corning, strengthening the company’s position in residential building materials and extending its offering of highly valued products and brands. Utilizing Owens Corning’s unique commercial capabilities and proven go-to-market model serving contractors, builders, and distributors, the company expects to build on Masonite’s strong track record of innovation, brand quality, and category excellence to grow in the doors market.

Established in 1925, Masonite designs, manufactures, and markets doors and door systems, with a vertically integrated manufacturing model serving both repair and remodel and new construction demand. And Masonite operates 64 manufacturing and distribution facilities, primarily in North America, and has over 10,000 employees globally.

Strategic and Financial Benefits

  1. The acquisition of Masonite and entry into doors adds a highly complementary line of innovative products and advances Owens Corning’s strategy to expand its building materials offering in residential applications. And both companies provide best-in-class products and brands, focus on building strong customer partnerships, and differentiate through quality, service, sustainability, and innovation. Through the acquisition, Owens Corning’s revenue generated from North American residential applications will grow to 60%.
  2. Owens Corning expects to utilize both companies’ best-in-class brands, extensive customer and channel knowledge, manufacturing excellence, and material science expertise to grow Masonite’s top line, reaching adjusted EBITDA margins of approximately 20%. And the deal also increases Owens Corning’s total addressable market by $27 billion and creates a platform to drive new growth opportunities in other product adjacencies.
  3. Through this transaction, Owens Corning grows revenue to $12.6 billion, with adjusted EBITDA of $2.9 billion on a synergized pro forma basis1 and with reduced ongoing capital intensity. And Owens Corning expects cost synergies of approximately $125 million annually, generated through scale and operational savings, with the majority realized by the end of Year 2 post-close. The deal drives meaningful shareholder value creation with ROIC exceeding Owens Corning’s cost of capital by the end of Year 3 post-close.
  4. On a synergized basis, the acquisition is expected to be a low double-digit percentage accretive to free cash flow by the end of 2025. And after accounting for transaction financing, Owens Corning expects net debt-to-EBITDA to be well within its stated 2-3x target range, deleveraging to 2.0x by year-end 2024. Owens Corning is committed to maintaining its solid investment grade rating and returning approximately 50% of free cash flow to shareholders over time.

The deal will be implemented through a statutory plan of arrangement pursuant to the Business Corporations Act (British Columbia). And the Boards of Directors of both companies have unanimously approved the transaction.

The deal is expected to close in mid-2024, subject to Masonite shareholder approval, regulatory approvals, and other customary closing conditions, including the issuance of interim and final orders by the Supreme Court of British Columbia approving the plan of arrangement. And the deal will be financed by cash on hand and committed debt financing of $3 billion provided by Morgan Stanley Senior Funding.

Following the closing, Masonite will operate as a reportable segment and will maintain Masonite’s brands and presence in Tampa, Florida.

Morgan Stanley & Co. is acting as lead financial advisor to Owens Corning, Lazard Freres & Co. provided additional advice to the Owens Corning Board of Directors, and Davis Polk & Wardwell is acting as Owens Corning’s legal counsel, and Stikeman Elliott LLP is acting as Owens Corning’s Canadian legal counsel. And Goldman Sachs is acting as lead financial advisor, and Jefferies also is acting as financial advisor, to Masonite. Wachtell, Lipton, Rosen & Katz is acting as Masonite’s legal counsel, and Cassels Brock & Blackwell is acting as Masonite’s Canadian legal counsel.

KEY QUOTES:

“We are excited by this opportunity to add a scalable new growth platform for our company. Masonite is a market leader that complements our existing residential interior and exterior product offering and has consistently demonstrated top-line growth and margin expansion. 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. We look forward to welcoming the talented Masonite team to Owens Corning and working with them to deliver enhanced value to customers and shareholders.”

– Brian Chambers, Board Chair and Chief Executive Officer of Owens Corning

“Our world-class team is transforming the door industry with differentiated solutions for the home. The combination with Owens Corning enables the acceleration of our Doors That Do More™ strategy, while delivering immediate and substantial value to our shareholders. This agreement brings together two storied companies with a common focus on innovation and making life better at home for the people who use our products every day. As we begin our next chapter after nearly 100 years in business, I am looking forward to Masonite joining the Owens Corning team.”

– Howard Heckes, President and Chief Executive Officer of Masonite