By Tim Binsted
Boral chief executive Mike Kane
Boral
Under threat: Boral's brick plants.Credit: Peter Morris
In its statement of issues last month, the Australian Competition and Consumer Commission was less than enthused by the deal.
The regulator rejected Boral and CSR's definition of bricks as part of a broader cladding market and gave the preliminary conclusion that the deal would increase the price of bricks and reduce consumer choice.
Shares in Boral were placed in a trading halt on Monday after it announced a $3.5b deal to buy Headwaters Corp. Credit: Nic Walker
At the building and construction materials group's general meeting on Thursday, Mr Kane said that the ACCC's issues paper is "concerning".
"We are in the fortunate position where the high price of land in Australian eastern metropolitan markets means that value will eventually be delivered for Boral shareholders if an ultimate exit over time is the only remaining option," he said.
Mr Kane has said previously that he may close brick plants, but his comments on Thursday are by far his strongest and most direct.
Citi analyst Simon Thackray said that bricks is a challenged industry from both from a competitive stand point and due to its high fixed costs.
"It's fair to say that the land can be more valuable than the actual manufacturing plant," he said.
"A joint venture that rationalises the manufacturing base makes total sense. Does it make the consumer worse off? I doubt it. Boral will honour what they say. They will sell and exit."
About 550 people work in Boral's brick business. Returns have been poor and Mr Kane has shown no hesitation to cut costs. He has axed more than 1000 jobs in a little over two years.
Mr Kane said he will make a "determined" and "swift response" to address profitability issues.
"Sadly for Australia, a narrow view by regulators will see the brick industry on the same trajectory as the auto, oil, refining, steel, aluminium and cement industries," he said.
ACCC chairman Rod Sims stressed that the issues paper is a preliminary view and the regulator is seeking more information.
But he was not swayed by Mr Kane's talk of shutting up shop, saying the ACCC does not base its conclusions on assertions.
"A lot of people assert they will exit the market in our merger review process," Mr Sims said. "Every time we assess a merger, the merger parties argue that our view is too narrow. Our preliminary view is that most residential houses use bricks as distinct from other cladding."
Mr Kane and Mr Sims will meet next week. The ACCC intends to make its final decision on December 18.
Mr Kane's blunt language contrasts with that of his merger partner CSR boss Rob Sindel. At CSR's results on Wednesday, Mr Sindel said he continues to engage with the ACCC and declined to comment further.
Boral also said that wet weather at the start of the 2014-15 year had delayed building and construction work on key parts of the east coast.
NSW had its wettest August in 16 years, which "had an adverse impact on construction materials and cement, with first quarter earnings below what we were expecting", Mr Kane said.
The company warned that sustained wet weather, failure to close potential property sales and weaker-than-expected pricing outcomes could dent performance.
Mr Thackray said that while the brick merger would be positive, the outcome in bricks is relatively insignificant for Boral given the vast majority of group earnings come from the construction materials division.
Boral shares shed 2¢ to $4.86 on Thursday.