DEFM14A: AZEK Company Stockholders to Vote on $7.78 Billion Merger with James Hardie, Creating Building Products Powerhouse

The AZEK Company Inc. is seeking stockholder approval for its acquisition by James Hardie Industries plc in a cash and stock transaction valued at approximately $7.78 billion, aiming to create a leading exterior and outdoor living building products platform.

Summary

• The AZEK Company Inc. (AZEK) has entered into an Agreement and Plan of Merger with James Hardie Industries plc (James Hardie) and its subsidiary, Juno Merger Sub Inc., for James Hardie to acquire AZEK.
• If the merger is completed, each share of AZEK Class A common stock will be converted into the right to receive $26.45 in cash and 1.0340 ordinary shares of James Hardie.
• AZEK stockholders are expected to collectively own approximately 26% of the combined company immediately following the closing, with James Hardie shareholders owning approximately 74%.
• The AZEK Board of Directors has unanimously approved the merger agreement and recommends that stockholders vote 'FOR' the merger proposal.
• James Hardie intends to fund the cash portion of the merger consideration, estimated at approximately $3.8 billion, through debt financing and cash on hand, with a $4.3 billion 364-day unsecured bridge loan commitment in place.
• The transaction is expected to close in the second half of calendar year 2025, subject to AZEK stockholder approval, regulatory approvals (including HSR Act expiration/termination), and other customary closing conditions.
• AZEK's outstanding equity awards (RSUs, PSUs, Stock Options) will be converted into James Hardie equity awards or cash, with certain non-employee director awards and former employee stock options being cashed out.
• AZEK's management projects the combined company to achieve $5,612 million in Net Sales and $1,592 million in Adjusted EBITDA for fiscal year 2025, including anticipated synergies.
• The merger is expected to result in significant cost and revenue synergies, projected to add $328 million of additional run-rate Adjusted EBITDA for the combined company within three years following closing.

Sentiment

Score: 8

Explanation: The document presents a highly positive outlook on the merger, emphasizing significant premiums, strategic synergies, and strong financial backing. While risks are disclosed, they are presented as standard for such transactions, and the overall tone is confident in the successful completion and benefits of the combined entity. The unanimous board approval and financial advisor's fairness opinion further bolster this positive sentiment.

Positives

• The merger consideration represents a compelling valuation for AZEK stockholders, with an implied value of $56.88 per share (based on James Hardie's March 21, 2025 ASX closing price), a 37% premium to AZEK's closing price on March 21, 2025.
• The consideration offers an attractive mix of immediate liquidity through the cash component and the opportunity for AZEK stockholders to participate in the future earnings, growth, and share price appreciation of the combined company.
• The merger is expected to create a leading exterior and outdoor living building products growth platform with enhanced scale, resiliency, balance sheet strength, and improved access to capital markets.
• Significant cost and revenue synergies are anticipated, projected to contribute $328 million in additional run-rate Adjusted EBITDA to the combined company within three years post-closing, driven by wallet share opportunities and broader geographic penetration.
• The transaction is expected to be accretive to the combined company's earnings per share in the first full fiscal year after closing.
• The AZEK Board unanimously approved the merger, believing it to be in the best interests of AZEK and its stockholders, after vigorous negotiations that secured multiple price increases and a cash component.
• James Hardie's obligation to complete the merger is not conditioned upon obtaining financing, and it has secured a $4.3 billion bridge loan commitment to fund the cash portion.
• Three current AZEK directors (Jesse Singh, Gary Hendrickson, and Howard Heckes) will be appointed to the combined company board, ensuring continued influence and strategic alignment.
• AZEK has successfully remediated previously identified material weaknesses in its internal control over financial reporting as of March 31, 2025, indicating improved financial controls.
• AZEK's strong historical performance, including a ninth consecutive year of Residential net sales growth and record net sales and Adjusted EBITDA in fiscal year 2024, positions it well for this strategic combination.

Negatives

• The value of the stock portion of the merger consideration will fluctuate based on James Hardie's share price, introducing uncertainty for AZEK stockholders.
• AZEK may be required to pay a substantial termination amount of $272 million to James Hardie under certain circumstances, such as if AZEK terminates the agreement to accept a superior proposal or if the AZEK Board changes its recommendation.
• The merger is subject to various conditions, including regulatory approvals, which could delay or prevent its completion, leading to adverse effects on AZEK's business and stock price.
• During the pendency of the merger, AZEK's business operations are subject to certain contractual restrictions, which may limit its ability to pursue other beneficial opportunities or strategic actions.
• Uncertainties associated with the merger may lead to a loss of management personnel and other key employees, potentially affecting the combined company's future business and operations.
• Current AZEK stockholders will have a reduced share of ownership and voting interest in the combined company, diminishing their influence over management and policies.
• James Hardie will incur substantial expenses related to the completion and integration of the merger, and there is no guarantee that anticipated synergies will fully offset these costs in the near term.
• The unaudited pro forma financial information is illustrative and may not reflect the actual financial position or results of the combined company, as final purchase price allocation and accounting policy conformity are pending.
• AZEK stockholders who receive James Hardie ordinary shares will have rights governed by Irish law, which differs from Delaware law and may afford less protection to shareholders.
• Dividends paid by James Hardie may be subject to Irish dividend withholding tax in certain limited circumstances, and transfers of James Hardie ordinary shares not through DTC may incur Irish stamp duty.

Risks

• The merger is subject to conditions, including regulatory and stockholder approvals, which may not be satisfied or completed on a timely basis, if at all, potentially leading to material adverse effects on AZEK.
• Delays in the completion of the merger could result in additional transaction costs, loss of revenue, and other negative effects associated with uncertainty.
• Upon consummation, certain change-of-control rights under AZEK's agreements may be triggered, potentially leading to third parties terminating or altering existing contracts or relationships.
• The fixed exchange ratio means the value of the stock consideration will fluctuate with James Hardie's market price, and AZEK stockholders cannot be certain of the final value received.
• Both companies are subject to business uncertainties and contractual restrictions while the merger is pending, which could adversely affect their respective businesses and operations.
• Uncertainties associated with the merger may cause a loss of management personnel and other key employees, impacting the future business and operations of the combined company.
• Current James Hardie shareholders and AZEK stockholders will have a reduced share of ownership and voting interest in the combined company following the merger.
• James Hardie and AZEK expect to incur substantial non-recurring costs associated with negotiating and completing the merger and integrating operations.
• The unaudited pro forma condensed combined financial information is for illustrative purposes only and may not be reflective of the actual operating results and financial condition of the combined company.
• AZEK's executive officers and directors have interests in the merger that may differ from, or be in addition to, AZEK stockholders' interests.
• Litigation may be filed against James Hardie, AZEK, Merger Sub, and AZEK's board members, which could prevent or delay the consummation of the merger.
• After the completion of the merger, James Hardie will be more leveraged, and new financing arrangements may contain restrictions affecting its business flexibility.
• The market price of James Hardie's ordinary shares after the merger may be affected by factors different from those affecting the price of AZEK common stock before the merger, and sales by AZEK stockholders may cause a decline.
• Changes to U.S. or other countries' trade policies and tariff and import/export regulations may adversely affect James Hardie's business, financial condition, and results of operations.
• James Hardie's maintenance of two exchange listings (NYSE and ASX) may adversely affect liquidity and result in trading price differences.
• Irish law differs from U.S. law and may afford less protection to James Hardie shareholders.
• Any attempts to acquire James Hardie will be subject to the Irish Takeover Rules, which may limit the James Hardie Board's ability to defend against unsolicited takeover attempts.
• James Hardie's status as a foreign private issuer may be lost, leading to increased compliance and reporting costs.
• The combined company will be subject to risks related to taxation in multiple jurisdictions, including changes to tax law, interpretation, or treaties, and potential additional tax liabilities due to audits.
• The IRS may not agree with the conclusion that the combined company is to be treated as a foreign corporation for U.S. federal income tax purposes, potentially leading to significantly increased taxes.
• A transfer of James Hardie ordinary shares, other than one effected by means of the transfer of book-entry interests in DTC, may be subject to Irish stamp duty.
• In certain limited circumstances, dividends paid by James Hardie may be subject to Irish dividend withholding tax (currently 25%).
• Creation of additional distributable reserves of James Hardie upon capitalization of any merger reserve would require Irish High Court and shareholder approvals.

Future Outlook

The merger is expected to be completed in the second half of calendar year 2025, subject to customary closing conditions including stockholder and regulatory approvals. The combined company is projected to achieve significant revenue and Adjusted EBITDA, benefiting from substantial cost and revenue synergies within three years post-closing, and is expected to be accretive to earnings per share in the first full fiscal year after the merger. AZEK's management anticipates continued growth in the outdoor living sector driven by material conversion and new product innovation.

Management Comments

• "On behalf of the board of directors of AZEK, I thank you for your support and appreciate your consideration of these matters." Jesse Singh, Chief Executive Officer, President and Director of The AZEK Company Inc.
• The AZEK Board unanimously approved the merger agreement and the transactions contemplated by the merger agreement, determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of AZEK and its stockholders.
• The AZEK Board unanimously recommends that AZEK stockholders vote: FOR the merger proposal; FOR the merger-related compensation proposal; and FOR the adjournment proposal.
• Jesse Singh's individual performance highlights for FY2024 included: 'Outstanding leadership during a pivotal year', 'Delivered above-target FY24 financial performance', 'Delivered 1-year TSR above all of Russell 3000 index, fiscal year 2024 peer group and S&P 1500 Building Products Composite Index', 'Delivered gains in digital brand traffic, contractor leads and other key brand performance metrics', 'Launched a number of successful new products driving material conversion and continued growth', 'Launched Company-wide Lean Six Sigma initiatives and trainings', 'Launched Executive Development Program', 'Recruited world-class IT talent, including Chief Digital and Technology Officer as well as VP, Digital Experience'.

Industry Context

The merger combines AZEK, a leader in low-maintenance, environmentally sustainable outdoor living products (decking, railing, trim, pergolas) with a strong focus on material conversion from traditional wood, and James Hardie, a leading producer of high-performance fiber cement and fiber gypsum building solutions. This combination is expected to create a dominant 'exterior and outdoor living building products growth platform' with enhanced scale and broader geographic reach across North America. The industry is experiencing secular growth trends driven by homeowners investing in outdoor spaces and a shift towards engineered, low-maintenance materials, which this merger aims to capitalize on.

Comparison to Industry Standards

• The implied value of the merger consideration for AZEK, at an enterprise-value-to-adjusted-EBITDA multiple, was 'significantly above precedent transactions in AZEK’s industry' of which the AZEK Board was aware.
• The potential synergy opportunities from the merger 'appeared to be substantial, and well-above-average relative to relevant precedent transactions in AZEK’s industry' of which the AZEK Board was aware.
• AZEK's one-year and two-year Total Shareholder Return (TSR) outperformed its fiscal year 2024 compensation peer group, the S&P Composite 1500 Building Products Index, and the Russell 3000.
• AZEK's three-year TSR also outperformed its peer group and performed similarly to the Russell 3000, reflecting successful execution of strategic growth initiatives.
• AZEK's primary consumer brands, TimberTech and AZEK, are recognized as #1 or #2 in brand awareness and 'Brand Most Used' in their respective categories (decking, railing, trim).
• AZEK's Adjusted Gross Profit Margin expanded to 37.6% in FY2024, and Adjusted EBITDA Margin expanded to 26.3% in FY2024, indicating strong operational performance relative to prior periods.

Management Changes

Corporate Governance

Legal Proceedings

• Beginning on May 19, 2025, certain purported stockholders of AZEK sent demand letters alleging omissions in the registration statement on Form F-4 filed by James Hardie on May 5, 2025.
• AZEK and James Hardie believe that the disclosures set forth in the registration statement comply with applicable law and that the allegations asserted in the demand letters are without merit.
• Additional demand letters or lawsuits arising out of or relating to the merger agreement and the transactions contemplated thereby, including the merger, may be filed in the future.
• There is a risk that a future lawsuit could successfully obtain an order enjoining consummation of the merger, preventing or delaying its completion and resulting in substantial costs.

Related Party Transactions

• AZEK entered into a Registration Rights Agreement with its former private equity sponsors (Ares and OTPP) and certain management members, providing customary piggyback registration rights. This agreement is no longer in effect for the sponsors.
• AZEK has entered into indemnification agreements with each of its current directors and executive officers, providing for indemnification and advancement of expenses to the fullest extent permitted by Delaware law.
• Certain related persons may engage in commercial transactions with AZEK in the ordinary course of business, primarily for the purchase of merchandise, though these transactions are not considered material.

Stakeholder Impact

• Shareholders: Will receive a premium for their shares, a mix of cash and stock, and will become shareholders of James Hardie, participating in the combined company's future growth. However, their ownership and voting interest will be reduced, and their rights will be governed by Irish law.
• Employees: May experience uncertainty about their roles within the combined company, potentially affecting retention. However, the merger agreement includes provisions for comparable compensation and benefits for covered employees for one year post-merger, and retention bonuses for certain executives.
• Customers: May experience disruptions or changes in business relationships due to the merger. The combined company aims to serve an expanded customer base with complementary products.
• Suppliers: May experience changes in relationships or renegotiation of terms due to the merger. The combined company aims to maintain existing relationships.
• Creditors: James Hardie will incur significant additional indebtedness to finance the cash portion of the merger, increasing its leverage. AZEK's existing credit facilities are expected to be paid off.

Next Steps

• AZEK stockholders to vote on the adoption of the merger agreement at a special meeting on June 27, 2025.
• AZEK stockholders to vote on an advisory (non-binding) proposal regarding merger-related compensation.
• AZEK stockholders to vote on a proposal to approve the adjournment or postponement of the special meeting, if necessary.
• James Hardie and AZEK to continue working towards satisfying closing conditions, including obtaining necessary regulatory approvals (HSR Act expiration/termination).
• James Hardie to cause its ordinary shares to be issued in connection with the merger to be approved for listing on the NYSE.
• James Hardie to file a registration statement on Form S-8, S-3 or S-1 for the Parent Shares subject to converted equity awards.
• AZEK's common stock will be delisted from the NYSE and deregistered under the Exchange Act if the merger is completed.
• James Hardie expects to permanently finance the cash consideration through new term loan debt, senior notes, and/or a new revolving credit facility, subject to market conditions.

Key Dates

Recommendation

Keywords

Merger, Acquisition, SEC Filing, Proxy Statement, James Hardie Industries plc, The AZEK Company Inc., Building Products, Outdoor Living, Fiber Cement, Composite Decking, Cash and Stock Transaction, Corporate Governance, Risk Factors, Financial Performance, Synergies, Regulatory Approval, HSR Act, NYSE Listing, Shareholder Vote, Debt Financing, Tax Implications, Executive Compensation, Sustainability