Construction materials manufacturer Azek (AZEK +0.00%) is in an agreement to be acquired, and investors are excited about the premium being paid.
Shares of Azek were up 16% as of 10 a.m. ET after the company agreed to be acquired by Australia's James Hardie Industries (JHX +0.00%) for $8.75 billion, including debt.
Combining two like-minded companies
Azek manufacturers decking made primarily of recycled materials, offering a more eco-friendly and sustainable option for homeowners. Hardie, which is based in Australia but does most of its business in the U.S., knows this niche well as the maker of Hardie board fiber cement siding.
On Monday, Hardie announced an agreement to acquire Azek for $56.88 per share, a premium of 26% to the target's average price over the past 30 days. Terms of the deal call for Azek holders to receive $26.45 in cash and 1.034 Hardie shares for each Azek share they own.
Azek management said the deal provides the company with the resources of a larger enterprise, but the share portion allows investors to capture some of the upside.
"Together with James Hardie, we are delivering value to Azek shareholders and providing them meaningful participation in the long-term secular and financial growth opportunities created by the combined company," CEO Jesse Singh said.
NYSE: AZEK
Key Data Points
Is Azek stock a buy?
Azek shares are up on Monday, but they are well below the published $56.88 acquisition price. However, that is no reason for investors to pile in. James Hardie shares are down 19% on the news, lowering the value of the stock portion of the deal.
There is more risk than reward for investors considering jumping in here. Hardie is buying Azek at a time of uncertainty in the U.S. housing market, and its share reaction is an indication its investors are worried. Though the deal is likely to win approval and close eventually, there is more risk that the deal does not go through, and Azek shares fall as a result, than that another bidder will come in and top Hardie's offer.
