As the backlash towards James Hardie continues, the company has broken its silence

There’s been a backlash towards James Hardie in the past few weeks that has nothing to do with its tortured history in asbestos.

Why the backlash towards James Hardie?

The backlash has been about James Hardie’s US$8.8bn/A$14bn deal to buy Azek, a manufacturer of outdoor living furniture (think deck chairs, railing and floorboards as examples). Or more specifically, how it is not allowing ASX investors to vote on the deal – something Wall St investors do get (JHX Wall St investors and Azek investors as well).

Companies seeking to issue shares amounting to more than 15% of shares on issue need to seek approval – something not true in the US – and James Hardie has been given an exemption. The deal involves the equivalent of 35% of JHX’s shares. This is not a case of JHX finding a legal loophole, but the ASX giving JHX a specific exemption.

And to add insult to injury (or giving a further ‘up yours’ to ASX investors), the dual-listed company (a company that redomiciled to the Netherlands just to minimise its ‘burden’ of asbestos claims) is shifting its listing from Australia to Wall Street. JHX shares have shed over 25% in value in a month.

Where has the ASX been in all of this?

A fair question. It has been part of the problem in granting it a waiver from the listing rules and not openly disclosing it until this was ‘outed’. ASX chief compliance officer Daniel Moran said forcing a shareholder vote,’ Would impose additional transaction costs and timing and execution risk, and put listed entities at a competitive disadvantage to unlisted entities in the market’.

In other words, ASX doesn’t want the company to delist completely on the basis of ‘red tape’. Not just having to hold a vote and shareholders meeting, but the risk the deal might be voted down because of the negative outlook for the US construction sector, and the fact the deal is being done at a hefty premium to the current share price – even before Trump’s tariffs. There’s no risk of Azek investors given they’re getting US$26.45 and 1.034 ordinary JHX shares per share as part of the deal.

Even with James Hardie remaining listed, we think a moving of its ASX status to its secondary listing is just as bad. Treasurer Jim Chalmers has reportedly raised concerns with the ASX directly, although it doesn’t seem like he will personally intervene any more than this.

James Hardie and the ASX have responded

James Hardie broke its silence this morning, and the ASX over the weekend. The ASX told investors it initiated a process for its rules regarding shareholder approvals for M&A. There will be a formal consultation, and the ASX will consider whether companies should have to disclose any listing rule waivers.

As for James Hardie, it issued a 2 page statement that completely shirked the issues worrying investors. The company promised investors that it would hold a shareholder vote before delisting from the ASX (which some investors fear a shift of its primary listing to the NYSE would be a slippery slope to), maintain independent directors, align management remuneration with generation of shareholder value and continue to hold an advisory vote on remuneration every year.

‘James Hardie Industries plc is committed to its corporate governance policies and practices, and this commitment will not change following completion of the AZEK transaction,’ the statement concluded.

‘We appreciate the opportunity to engage on our corporate governance framework with our shareholders, and we will continue to seek shareholder input on these topics’.

Conclusion

Still, it seems James Hardie is not budging on its unwillingness to ‘seek shareholder input’ from ASX shareholders on the AZEK transaction, so investors would still be disappointed. Even so, we think it is noteworthy that it felt the need to put out such a statement irrespective of whether it is unaware of the real reasons investors are unhappy, or if it is aware and proceeding anyway.

What are the Best ASX Stocks to invest in right now?

Check our buy/sell tips