Building products makers Boral and CSR have proposed a bricks joint venture in response to weakening demand.
Building products maker Boral warns it may have to close some brick operations if the consumer watchdog doesn’t approve its proposed joint venture with rival CSR.
The two companies plan to combine their east coast brickmaking and distribution businesses in a joint venture designed to save between $7 million and $10 million a year.
Boral chief executive Mike Kane said the joint venture was the best way to ensure the future of Australia’s brick manufacturing sector, which has suffered due to declining demand as builders and developers opt for other materials.
“Solutions like this, in my view, are the only solutions possible in the face of the headwinds we face,” he said.
“We’ve got to get to the point where we can manufacture bricks in Australia at a return that can attract capital.”
If the deal doesn’t receive approval from the competition watchdog, Boral would be faced with having to close some of its operations, Mr Kane said.
“We’ve already closed all of our surplus capacity in most of these states and the next move for us is to exit markets,” he said.
“I think that’s not helpful and the least attractive option.”
The companies will argue to the Australian Competition and Consumer Commission (ACCC) that bricks represent a small and declining part of the broader cladding industry, and competition wouldn’t be significantly affected by the merger.
“We believe we’ve got a credible case to show that there is a cladding industry in Australia, not a brick industry,” Mr Kane said.
The joint venture would operate in NSW, Queensland, Victoria, South Australia, Tasmania and ACT and would have a combined revenue of around $230 million.
CSR would own 60 per cent of the venture and Boral a 40 per cent stake, reflecting the relative sizes of their respective brick businesses.
Mr Kane said the initial savings would come from consolidation of the two companies’ back office operations and management, but has not ruled out cost cutting or staff reductions down the track.
“Longer term there may be some additional cost cutting opportunities but we’ve not clarified that, we want to give the new management team the opportunity to look at cost opportunities,” he said.
Shares in Boral were up 3.5 cents at $5.725 at 1515 AEDT, while CSR shares were up two cents at $3.59.