The Australian Securities Exchange (ASX) has announced a review of its shareholder approval rules for mergers and acquisitions (M&A), following investor concerns over James Hardie Industries' proposed $8.75 billion acquisition of AZEK Company Inc. and the plan to shift its primary listing to the New York Stock Exchange (NYSE).

The ASX's decision to reassess its M&A regulations highlights growing apprehension among investors about the potential dilution of shareholder interests and diminished oversight when companies issue shares for significant deals without direct shareholder approval.

Background on James Hardie Industries and AZEK Company Inc.

James Hardie Industries is a global leader in fiber-cement building materials, headquartered in Dublin, Ireland, with significant operations in Australia and the United States. The company specializes in manufacturing durable siding and exterior products for residential and commercial construction.

AZEK Company Inc., based in Chicago, Illinois, is a prominent manufacturer of outdoor living products, including decking, railing, and pergolas. The company focuses on using synthetic materials to create low-maintenance, high-performance building products.

Details of the Proposed Acquisition

In March 2025, James Hardie announced its intention to acquire AZEK in a cash-and-stock deal valued at approximately $8.75 billion, including $386 million in debt. Under the terms of the agreement, AZEK shareholders would receive $26.45 per share in cash and 1.034 James Hardie shares for each AZEK share they own. This valuation represents a 26% premium over AZEK's average share price in the 30 days preceding the announcement.

The acquisition aims to create a combined entity with annual earnings before interest, taxes, depreciation, and amortization (EBITDA) of $1.8 billion and revenues of $6 billion, predominantly in the U.S. market. The merger is expected to enhance annual earnings by at least $350 million through $125 million in cost savings and $500 million in revenue synergies.

Investor Concerns and ASX Review

The proposed acquisition and James Hardie's plan to shift its primary listing to the NYSE have raised significant concerns among Australian investors. A coalition of major investors, including AustralianSuper, UniSuper, Schroder Investment, and Fidelity Australia, has urged the ASX to review its listing rules. They argue that allowing companies to issue large volumes of shares for acquisitions without requiring a shareholder vote is unreasonable and risks diluting existing shareholders' interests.

In response to the controversy, ASX Managing Director and CEO Helen Lofthouse emphasized the need to enhance shareholder voice while maintaining market integrity. She stated, "We have heard from investors... that they want a greater voice for shareholders invested in ASX-listed companies, but we are also mindful that we need to examine this question in a way that ensures we serve the needs of the market."

James Hardie has acknowledged the pressure and stated it will hold a shareholder vote before proceeding with any listing changes.

Social and Economic Implications

The ASX's decision to review M&A rules reflects a broader concern about corporate governance and shareholder rights in Australia. The outcome of this review could lead to more stringent requirements for shareholder approval in significant corporate transactions, potentially altering the landscape for future M&A activities.

For James Hardie and AZEK, the acquisition represents a strategic move to capitalize on the U.S. housing market, despite challenges such as high mortgage rates and inflation impacting homeowners' willingness to invest in upgrades. The combined company's focus on synthetic materials for home improvements positions it to meet the needs of aging U.S. homes, with the median age of a U.S. home being 43 years.

The ASX's review of its M&A shareholder approval rules underscores the delicate balance between facilitating corporate growth and protecting shareholder interests. As the review progresses, stakeholders will be keenly observing how potential regulatory changes might influence future corporate strategies and the broader investment landscape in Australia.