By Jonathan Stempel
(Reuters) - U.S. building products company USG Corp (N:USG) on Tuesday said it agreed to open talks to sell itself to Germany's Gebr Knauf AG, a takeover that could benefit Warren Buffett's Berkshire Hathaway Inc (N:BRKa), USG's largest shareholder.
USG had in March rejected a $5.9 billion (£4.3 billion) takeover proposal by Knauf, its second-largest shareholder, that valued the wallboard maker at $42 per share.
But USG changed its mind after Berkshire, which holds a roughly 31 percent stake, and two major proxy advisory firms recommended voting against four USG board nominees at the Chicago-based company's May 9 annual meeting.
Merger talks may not succeed, and USG signalled it might hold out for more than $42 per share, saying Knauf "should be able to identify additional sources of value in combining the businesses and will see value in excess of its most recent proposal."
Knauf, which recently held a 10.5 percent USG stake, said it was "encouraged" by USG's change of heart, while maintaining that its original all-cash offer reflects "full and fair" value.
"We are pleased that the board has acknowledged shareholders want to see a transaction," Knauf said.
Berkshire did not immediately respond to a request for comment.
USG shares rose on Tuesday to their highest level since August 2007. In afternoon trading, they were up 4 percent at $41.82 on the New York Stock Exchange.
Berkshire has owned a USG stake since 2000, shortly before asbestos liabilities helped push USG into bankruptcy for five years.
It provided USG with a lifeline in 2008 after the housing market imploded, buying $300 million of convertible debt that it later swapped into stock.
Buffett has called the USG investment "no disaster," but selling it gives him a way out.
Berkshire had offered to sell its roughly 43.4 million USG shares for at least $42 each, if Knauf bought the rest of USG for that price or more. Knauf would have paid Berkshire $2 per share up front for that privilege.
A sale would add to Berkshire's roughly $116 billion of cash and equivalents, giving it even more money for one or more of the "huge" non-insurance acquisitions Buffett has said he wants.
Berkshire holds its annual shareholder meeting on Saturday.
USG Chief Executive Jennifer Scanlon and Chairman Steven Leer are not among the directors up for election next week.