Buffett to Exit USG Investment as $7 Billion Knauf Deal Accepted

USG Corp. agreed to a $7 billion acquisition by Germany’s Knauf KG, a deal championed by Warren Buffett as a way to exit an 18-year investment that suffered through bankruptcy and a bailout.

The biggest U.S. maker of gypsum wallboard accepted an offer of $44 a share, which was sweetened from $42 after Buffett’s Berkshire Hathaway Inc. threw its weight behind a Knauf-led shareholder revolt to prod USG to sell. The purchase values Berkshire’s 31 percent stake at $1.91 billion. Knauf is the second-largest shareholder with about a 10 percent stake.

Shareholders will receive $43.50 of the offer in cash, plus a special dividend of 50 cents a share, the companies said in a statement Monday.

The deal enables Berkshire to exit what Buffett has called a “disappointing” investment. USG filed for bankruptcy protection in 2001 under the weight of asbestos litigation settlements, and emerged in 2006 with Berkshire as a backstop investor. Two years later, Buffett bailed out the company with $300 million in funding that converted to shares after the U.S. housing market imploded and credit markets locked up.

The stock rose 3.7 percent to $42.97 in early trading.

Berkshire’s stake in USG became so large that it couldn’t sell off the shares in the open market without pushing down the price, analysts said. Buffett said in a May 7 interview on CNBC that directors were failing to represent Berkshire’s interests.

The acquisition gives Knauf, a closely held maker of drywall and insulation, access to the U.S. construction market and ownership of the well-known Sheetrock brand. Knauf had 2016 sales of 6.5 billion euros ($7.7 billion) and employs 27,500 people worldwide.

Knauf began pursuing USG in November with an offer of $40.10 a share that later was raised to $42. USG had been reluctant to sell, calling Knauf’s offers inadequate and opportunistic because the Chicago-based company had just turned the corner on its financial troubles and begun to reap the gains of a recovering U.S. housing market.

Berkshire said on April 12 it would vote against USG’s board nominees, joining Knauf in a public sign of support for a deal and piling more pressure on USG management. USG restarted talks with Knauf in May after Shapiro Capital Management, the fifth-largest shareholder, said on April 24 it would join the shareholder protest by voting against USG’s board slate.