Shares of USG Corp. (USG) soared more than 15% in early trading Monday, March 26, after the company's biggest shareholder, Berkshire Hathaway Inc. (BRK.A - Get Report) , said it proposed to allow Knauf Entities to purchase all of Berkshire's USG shares at about a 25% premium.
Knauf was granted the right to purchase the shares for $42 each, which would be a 25.3% premium over USG stock's closing price on Friday, March 23. Berkshire made the announcement in a filing with the Securities and Exchange Commission on Monday.
But shortly after Berkshire made the filing giving approval for a Knauf bid, USG announced that its board of directors has unanimously rejected the Knauf offer.
"The board carefully evaluated it and determined that it substantially undervalues the company and is not in the best interests of all of USG's shareholders," USG said in a statement.
"Our board is always looking for ways to deliver value to all of our shareholders, but Knauf's opportunistically timed proposal is wholly inadequate as it does not reflect USG's intrinsic value, including the significant opportunities ahead of us," said Steven Leer, USG's non-executive chairman. "We are confident that the strategy we presented on March 8, 2018 at our investor day will deliver significantly more value to our shareholders than Knauf's proposal."
"As outlined at our investor day, we expect our strategy to drive further revenue growth, margin expansion and free cash flow -- all of which will position us to deliver profitable growth and increased shareholder value," USG continued.
Knauf had on March 15 proposed non-binding plans to acquire all of Berkshire's USG holdings for $42 a share. Berkshire said Monday that Knauf executives had been in contact with the company for years about the prospect of buying Berkshire's USG stake. No bindings agreements have been made as of yet, though.
Berkshire owns about 30.8% of USG shares outstanding, or roughly 43.4 million shares. Knauf is the company's second-largest shareholder with about 10.5% of shares, according to FactSet.
USG stock rallied 17% to $39.17 in morning trading on Monday. Prior to Monday, USG stock had fallen 13% since the start of the year.