Is Fletcher Building in play as a takeover or break-up target?

It has been three days since an Australian media story suggested that bankers were circling, but the share price suggests that investors don't believe it is serious - yet.

Fletcher shares remain very much stuck in the doldrums in the wake of last month's profit downgrade.

They closed at $7.84 yesterday off more, more than three per cent down since the start of the week.


In fact a month on from the announcement that the woes of Fletcher Construction would see profits fall by up to $150 million short of forecasts, the company is worth about $1 billion less than it was pre-downgrade. In fact it's worth about $2 billion less than it was at the start of year.

That suggests there is not a great deal of investor optimism out there about an imminent recovery.

It also suggests that while investors don't yet see an M&A play as imminent, the company is vulnerable should some smart investment banker see a way to unlock short term value.
Sale potential

Rickey Ward, NZ equity manager at JB Were, makes the point that the way Fletcher Building has been operating - with distinct divisions required to stand on their own merits - makes a sell off all the more plausible.

"That scenario is very reminiscent of Fletcher's end story of old," he says. "That means everything is up for sale potentially."

Ward believes that we'll find out sooner rather than later if a sell-off is an option for the board.

"If there's speculation out there that people are running around with pitch books, I'd say that even if they weren't, you can bet your bottom dollar they will be now because one thing investment bankers don't do is miss an opportunity."

That means that, at the very least, the board is likely to be presented with a few options in the coming weeks.

Breaking up is hard to do

A break-up for Fletcher Building would test the loyalty of long term shareholders, many of whom are feeling quite let down by the way the company has handled it's downgrade announcement.

The whole situation is likely to prompt a bit of déjà vu for those that can recall the break-up of the original Fletcher empire in the 1990s.

That started in 1993 with a split out of the Forests division into a separate share - followed by Fletcher Paper, Fletcher Energy and Building.

Fletcher Building currently houses five distinct divisions: Building Products, International Businesses, Distribution, Residential and Land Developments and the poorly performing Construction.

On the corporate calendar both the board and management have a little time to get things back on track. The next big reveal is the full year earnings announcement due August 16. The Annual General Meeting is scheduled for October 25.

Trump rally fades

In the US Wall Street's Donald Trump rally seems to have run its course although thankfully, at the time of writing, the US indices have been treading water with slight falls and rebounds as opposed to plunging. Since peaking on the 1st of March (up 18 per cent since the Presidential election) the Dow Jones is down 3.3 per cent.

The sideways shuffle is more in line with what the NZX has been doing this year.

The cool off seems less to any major world events and more a case of the market accepting that Trump won't be easily able to push through a raft of domestic measures, such as a tax cuts and infrastructure spending, that might have given corporate America a big shot in the arm.

The pause should allow investors a chance to digest some ongoing political risks - French and now British elections - and Trump's stand-offs Russia over Syria and North Korea.

Assuming World War III doesn't break out, then attention will shift back to the US economy and the odds of the Federal Reserve maintaining its program of interest rate hikes.

In the US these days the absence of terrible news is good and it is important to remember that beneath all the politics is an economy still in recovery mode.

Fiery meeting

It looks like there will be heat in a meeting in Auckland today when shareholders in property trust NPT gather to decide on a controversial deal with the $1.8 billion (market cap) Kiwi Property Group.

The Shareholders Association and ANZ - with 15.3 per cent of NPT (market cap $100 million) - both now back the deal but opponents include Augusta Capital with 18.85 per cent of NPT and Salt Funds Management with 13.7 per cent.

"That makes it a fairly high hurdle to get over," said one party close to the action.

The eloquent Tony Sewell is NPT's independent chairman. He's the property expert who ran Ngai Tahu's real estate portfolio for 21 years, taking it from about $3m to around $553m when he left around the end of last year.

Craig Tyson has spoken on the NPT deal for ANZ. Mark Francis issued the NZX notice from Augusta. Matt Goodson represents Salt. Chris Gudgeon is Kiwi's chief executive.

Will they all turn up? Will they all speak? It promises to be a lively affair if they do.

The meeting is scheduled for 11am, on level 11 of the 80 Queen St tower.

NPT shares closed yesterday at 62c.