QXO says Beacon’s board ‘stalls and misleads’ in letter to shareholders

QXO (QXO) released a letter to Beacon Roofing Supply (BECN) shareholders regarding its $124.25 per share all-cash offer, which read in part, “We seek to set the record straight on some of the numerous misleading statements in Beacon’s recent communications. QXO’s Offer to Acquire Beacon Roofing Supply is Highly Compelling and at a Significant Premium to Beacon’s Unaffected Share Price In evaluating QXO’s offer, Beacon conveniently ignores that its share price reflects our acquisition interest following the Wall Street Journal’s November 18, 2024 report. That day, Beacon’s stock rose 9.9%, compared to a 0.4% increase in the S&P 500. Yet, Beacon compares QXO’s offer to share price metrics as of January 14, 2025-a misleading approach that distorts expectations of Beacon’s standalone value. A more appropriate analysis shows that QXO’s offer represents: A 37% premium to Beacon’s 90-day unaffected VWAP of $91.02 per share as of November 15, 2024; A 26% premium to Beacon’s unaffected spot price of $98.75 per share as of November 15, 2024; and A higher price than Beacon’s stock has ever traded. Indeed, Beacon acknowledges that November 15, 2024 is a significant date, referencing stock performance “from January 2, 2020 to November 15, 2024.” Moreover, since November 15, 2024, Beacon’s Building Products Proxy Peers have lost 10.5% in value, making QXO’s offer even more compelling: A 41% premium to an implied spot share price of $88.42; and A 52% premium to the peer-adjusted 90-day VWAP of $81.50. Data Indicates that Beacon Will Miss its Margin Targets. The Board’s Claim of Strong Performance is Flawed Beacon’s Board touts cherry-picked historical performance, painting a misleading picture of its track record. Consensus analysts’ estimates indicate that Beacon will miss all margin targets under its “Ambition 2025” plan. Further, Beacon’s revenue growth largely stems from extraordinary inflation and inorganic growth between 2022 and 2024. From 2019 through LTM September 2024, Beacon’s 7.7% revenue CAGR is the lowest of its peer group and well below the peer median of 12.1%. Despite setting unambitious “Ambition 2025” targets, consensus analysts’ estimates indicate that Beacon will: Miss its 2025 Gross Margin target by 130 basis points; Miss its 2025 EBITDA Margin target by 114 basis points; and Deliver EBITDA margins 20bps lower in 2025 than when the “Ambition 2025″ plan was introduced4. Furthermore, Beacon’s claims of superior stock performance are easily debunked. Over the past five years, Beacon’s total shareholder return has trailed its Building Products Proxy Peers by 86% and trailed those peers by 140% since CEO Julian Francis took over as CEO in August 20195. QXO’s Offer Represents a 3.0x Premium to Beacon’s Historical Multiple Beacon’s lackluster operational performance and relative share price underperformance are reflected in its enterprise value to next-twelve-months EBITDA multiple, which has remained rangebound at an average of 8.1x over the past three years. Meanwhile, its valuation gap relative to its Building Products Proxy Peers widened by 1.3x over the same period…Beacon’s recent filings indicate no viable third-party alternative to QXO’s premium offer. Beacon’s 14D-9 filing has not disclosed any competing offers, or even a single NDA being signed. Interestingly, on December 2, 2024, representatives of J.P. Morgan explicitly informed representatives of Morgan Stanley that they had been authorized to approach other potential suitors for Beacon. QXO’s letter to Beacon sent on the following day stated this clearly, yet Beacon made no effort to dispute this until two months later, on February 6, 2025. QXO’s offer is clear, compelling and in shareholders’ best interest. It is time for Beacon’s Board to stop obstructing shareholders and let them decide their own financial future.”