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Masco (MAS) to Sell Cabinetry Business to ACProducts for $1B

Zacks Equity Research

As part of "strategic alternatives" for cabinetry and window businesses announced in March 2019, Masco Corporation MAS announced that it has entered into a definitive agreement with ACProducts, Inc. to sell Masco Cabinetry for $1 billion, which consists of $850 million in cash at closing.

In July 2019, the company revealed its plan of pursuing the sale of these businesses that include well-known brands such as Merillat, KraftMaid and Milgard. In this regard, on Nov 7, the company announced the completion of the proposed sale of Milgard Windows and Doors to MI Windows and Doors LLC for approximately $725 million.

Deal Rationale

The deal is expected to close in first-quarter 2020, subject to customary closing conditions and regulatory review. In addition to the cash payment, preferred stock worth $150 million will be issued by a holding company for the buyer. The stock will have a coupon of 8%, which will increase to 10% in the third year of issuance.

Notably, the said business will be treated as discontinued operations for the fourth quarter and full-year 2019. Completion of the "strategic alternatives" is expected by the end of first-quarter 2020.

For 2019, Masco now projects annual tax rate of 26% compared with previous expectation of 25%. Earnings per share are now anticipated within $2.12-$2.16 on a reported basis and $2.19-$2.23 on an adjusted basis. This compares unfavorably with the prior projection of $2.41-$2.45 on reported basis and $2.52-$2.56 on adjusted basis.

Post the competition of the transactions, Masco — which shares space in the Zacks Building Products – Miscellaneous industry with Armstrong World Industries, Inc. AWI, Owens Corning OC and Louisiana-Pacific Corporation LPX — aims to focus on the repair and remodel segment of the housing market. The company’s Plumbing Products and Decorative Architectural Products businesses, which contributed more than 88% to third-quarter 2019 revenues, will be a key catalyst after the completion of strategic review.  

Our Take

Shares of Masco, a Zacks Rank #4 (Sell) company, have outperformed its industry in the year-to-date period. The outperformance is mainly driven by the company’s solid brand portfolio, strategic initiatives and cost-saving measures. Also, its plans to drive shareholder value through reinvesting in the business, selectively pursuing acquisitions with the right fit and return, as well as returning cash to its shareholders via share repurchases and dividends add to the positives. Masco’s strategic efforts are likely to help the company generate higher profitability going forward.

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