Analyst backs price boost for Fletcher's Crane bid

Philip King. Photo / Supplied

Speculation that Fletcher Building will boost its takeover offer for Australian construction company Crane Group continued to mount yesterday.

Shares for both companies stayed on trading halt at market close despite talk they were close to a deal.

Forsyth Barr Research analyst Rob Mercer yesterday retained a "buy" recommendation on Fletcher in the face of widely expected changes to the A$740 million ($947.1 million) offer price and said moves by the companies showed a willingness by the parties to co-operate, which was extremely positive.

"Fletcher Building has put a lot of effort into this and you do want to see an outcome that's successful."

His comments followed market speculation of a change which would see Fletcher offer A$10/Crane share.

Mercer said a price rise would be good news for both businesses. If talks hammered out the new deal, he would still be pleased with the offer.

"I guess it is reflecting a discussion to enable there to be a meeting of minds between the views of the board of Crane and the willingness of the Fletcher Building board to meet in the middle, somewhere sensible."

What remains uncertain is who might have taken the first step to discuss any price boost and whether there was any influence from fund manager Perpetual, majority shareholder in both Fletcher and Crane.

"I don't know who's driving this," Mercer said. Neither Fletcher nor Crane admitted that discussions were over a price change.

On Monday, Crane will release its target's company statement and the full Ernst & Young independent appraisal of Fletcher's existing offer.

Mercer expected Fletcher might make a A$10 offer which would beef up the A$9.35 tabled pre-Christmas but spurned by Crane's board.

He had already prepared a full financial summary of how Crane's fundamentals looked under any revised bid, "based on the assumption that the top-up is made through increasing the cash bid from the current level of A$3.47 to A$4.12".

He also presented data for the A$9.35, A$10 and A$10.25 bids, showing how the differing price changed the fundamentals of the deal. If A$10 is eventually offered for each Crane share, Fletcher would pay an extra A$44 million ($58 million), or a dilution impact of -10cps to existing Fletcher shareholders, he estimated.

"We can live with the extra cost, if it is enough to effect the full support from the Crane board, but we reiterate our view that the price being paid is a full and fair price," Mercer said.

"Crane shareholders gain two benefits from the takeover being a combination of cash and shares: a full cash takeover would have capital gains ramifications, whereas the share offer does not; and Crane shareholders will share in the merged benefits of the two companies as well as the cyclical leverage over the next few years," Mercer said.

He pointed to cost savings from the takeover.

Fletcher investor relations manager Philip King said yesterday that he now believed it was "unlikely" any announcement would be made last night. Fletcher shares last traded at $7.89 and Crane at A$9.58.