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What happened
Shares of cement company Headwaters Inc. (HW) jumped as much as 18.8% on Monday after announcing the company will be bought out. At 12:40 p.m. EST, shares had fallen slightly from their peak to a 17.1% gain on the day.
So what
Australian firm Boral Limited has agreed to buy Headwaters for $2.6 billion, or $24.25 per share in cash. The deal is a 21% premium from Friday's closing price.
The driver of the deal is speculation that the new Trump presidency will lead to greater construction and that fewer coal plants will be shut down in the future. Fly ash from power plants is a key component to Headwaters' fly ash cement, so greater consumption of coal -- or stemming the declines in coal consumption -- would be good for the company's cost structure. And Boral is betting that all of those factors will make the acquisition a good investment.
Now what
For Headwaters' current shareholders, the offer is a nice premium, and with shares trading close to the acquisition price, it may be time to take some chips off the table. There's still a risk the deal could fall through, especially given the foreign buyer, so taking today's profits is a good financial move.
As for Boral, the deal is built on a thesis that has yet to come to fruition. Coal plants haven't been in favor for decades, and with natural gas and renewables both very cost competitive versus coal, I don't see why consumption of the fuel would rise. Time will tell if the bet pays off, but that'll be long after Headwaters' shareholders would have cashed in on the buyout offer.