BPB v St Gobain

Yesterday, the French building materials conglomerate, St Gobain, put in a hostile bid for BPB, our principal plaster and plasterboard manufacturer. After two friendly offers were rejected, they have now gone hostile at 720p a share. But the institutions want 750p, maybe even 800p and won’t accept the St Gobain offer as it stands. Before all this takeover kafuffle started, BPB shares were trading at around £5 and had, in truth, been a very unremarkable investment over the years. BPB turns over just over £2 billion a year which, coincidentally, was roughly its market capitalisation before St Gobain appeared over the horizon. It’s expected to make a profit of around £250 million this past year, that’s 36p per share, and it pays roughly half of this out as dividend. At £5, BPB was priced at around 14 times annual earnings, roughly in line with the sector: at £8, this ratio goes up to 22 times which, as far as the City is concerned, is off the top of the scale.

So why do the French seem so keen on buying yet another piece of the UK building supplies industry? Would you pay £300,000 for a house which was reckoned to be worth £200,000 just a few weeks ago? It appears that St Gobain are prepared to. What is it that attracts St Gobain so much?

BPB is not just “another house.” For one thing, it retains the exclusive rights to mine gypsum in the UK and whilst mined gypsum is not exactly a priceless commodity, it’s been incredibly helpful to BPB over the years in keeping rivals at bay. Most mined British gypsum is pink: the pink colour is actually an impurity but it’s become so accepted that when the other two European manufacturers, the German privately-owned Knauf and the French conglomerate Lafarge, wish to sell gypsum plasters into the UK, not only do they have to ship the stuff across the Channel but they have to die it pink as well, otherwise British plasterers won’t accept it.

In fact BPB used to be known as British Gypsum. It began life in 1917 and it was only in the 1990s that it changed its name to BPB (British PlasterBoard) to reflect the fact that boards were now the main part of the business, plus the fact that it was by then an international trading company and far from exclusively British. Plasterboard was originally invented in America in 1916 by the US Gypsum Company: they called it Sheetrock and they tried for years to get builders interested in their innovation but to little avail.

It was the need to reduce construction manpower in World War 2 which eventually caused Sheetrock to take off. It did away with the need for wood lath, multiple plaster coats, and days and days of drying time — hence its American generic name, drywall. In Britain, we have always referred to it as plasterboard. Installation was simple: the sheets were nailed up, the nail holes were filled, paper tape was used to cover the joints, and a textured coating was trowelled on to help disguise the defects. Voila, as the directors of St Gobain might say.

In Britain, the take-up of these boards was similarly slow. British Gypsum plugged away throughout the 50s and 60s trying to get builders to accept this modern method of construction but, because the bulk of our housing is masonry, most builders still preferred to use wet plaster. It didn’t matter a great deal as the company had a monopoly on all gypsum products, whether bagged plasters or boards.

But the monopoly was to go in the 1980s as both Knauf and Lafarge entered the UK market. Whereas initially, British Gypsum sold plasterboard to builders as time-saving innovation (really an excuse to charge more money), plasterboard then became one of the ultimate commodity products. Its price has remained largely unchanged for twenty years. But the manufacturers countered this by making plasterboard with less gypsum and more air, thus reducing their costs. Whilst this kept British Gypsum’s bottom line ticking over, it did very little for the acoustic properties of British housing. BPB, as it now is, used this as a marketing ploy and, when the sound regs were beefed up in 2003, they “introduced” a new board called TenBoard, specifically to meet the new requirements. Why the name? The "ten" refers to the weights of the board per square metre — i.e. 10kg. Ironically, back it in the 60s and 70s, all plasterboard weighed this much!

Ninety years after its invention, the market for plasterboards is still growing and looks set to continue to grow. Although I am not a great fan of our government’s push to get everyone and their aunt to embrace Modern Methods of Construction, the truth is that they are pushing against an open door and housebuilding is going that way, whether we like it or not. One of the key difference between modern methods and old-fashioned ones is the presence or absence of water during the building process — modern methods are almost always dry methods — and plasterboard, in its many forms, is always going to form a part of any MMC construction system.

That, I guess, is St Gobain’s reasoning. Whilst the City looks at valuation in comparison with similar businesses, St Gobain are empire building and are all about fitting bits of the jigsaw into place. To them, this house may well be worth £300,000 because owing it unlocks value elsewhere. Whether it succeeds in making a sensible business is another story but at heart we have another classic encounter between the Anglo-Saxon model — everything’s for sale, at the right price —and state capitalism as practiced by the French. Whilst the French seem slowly to be hoovering up our utilities and our manufacturing base, we Brits are spending the proceeds on French property.