The Heating Housing Market and Owens Corning's Acquisition

The housing market is showing signs of heating up, with the recent purchase of Masonite making headlines.

On Friday, Owens Corning announced its acquisition of Masonite for $133 per share in cash.

Prior to the deal, Masonite stock closed at $96.61 on Thursday. However, in premarket trading on Friday, the shares surged to $129.49, reflecting a 34% increase. This 2.6% discount to the final deal price indicates investor confidence in the deal's successful completion at the agreed-upon price. Such a slight discount aligns with the expected return on investment as the deal advances towards closing.

According to Owens Corning management, the completion of the deal is projected to take place in "mid-2024."

While Owens Corning's stock experienced a 4.7% decrease in premarket trading, both S&P 500 and Nasdaq Composite futures saw increases of 0.2% and 0.3%, respectively.

This acquisition is not structured as a stock-based deal, which eliminates speculation about arbitrageur activity. However, some investors express concerns about the additional debt Owens Corning will incur. To finance the transaction, Owens Corning will rely on $3 billion in debt provided by Morgan Stanley.

Owens Corning is renowned for its pink insulation products, while Masonite specializes in door manufacturing. Both companies cater to the residential construction market.

With residential construction spending in the U.S. encompassing a thriving $1 trillion industry, it is evident that the sector is experiencing notable growth. Although spending has rebounded by approximately 10% since its 2023 lows, it remains about 6% below its peak levels in 2022.

Deal Highlights

• Sales: Owens Corning to have sales of about $12.6 billion.
• Ebitda: Adjusted Ebitda of about $2.9 billion, including expected annual synergies of $125 million.
• Valuation: Combined company trading for about 6.6 times the estimated Ebitda, including synergies.
• Comparison: Owens Corning and Masonite stocks trading at lower multiples compared to S&P 500.
• Growth Platform: Addition of a scalable new growth platform for Owens Corning.
• Market Leader: Masonite is a market leader in the industry.
• Conference Call: Management hosting a conference call at 8:30 a.m. to discuss the deal.