Crane cold shoulders Fletcher bid

Photo / Supplied

Fletcher Building's almost $1 billion hostile takeover bid for Australian construction materials maker Crane Group is gathering heat.

The Sydney-based firm told its shareholders yesterday that the New Zealand company's offer was inadequate, opportunistic and should be rejected.

Forsyth Barr analyst Rob Mercer described Crane's instructions to its investors as "a bit rash", as Fletcher's offer had strong merits.

"If you've been a shareholder of Crane, you've been in a company that's had substantial earnings downgrades for the last 12 months and missed guidance," Mercer said.

"Fletcher Building's had a better run of it. They've obviously had their own areas of disappointment further back, but in the last 12 months their earnings have stabilised and they're making some key improvements across some of those businesses that were underperforming a year before."

In a statement supplied to the Australian Stock Exchange (ASX), Crane said the offer failed to recognise the strategic and stand-alone value the firm offered Fletcher, which acknowledged its bid was coming at a low point in the industry cycle.

The offer did not take into account the "substantial synergies" the acquisition would provide the Auckland-based company, such as maximising the sales of the two firms through combined distribution channels, the company said.

Through acquiring Crane, Fletcher gains access to its plastic pipe manufacturing business, which would complement its own concrete pipe making activities.

Philip King, Fletcher's general manager for investor relations, said the bid included a substantial premium - 28 per cent of the one-month, volume average weighted price.

Asked if the company would consider increasing its offer, King said: "The offer as it is, is as it is."

Mercer said Fletcher's chances of getting its offer accepted by Crane's shareholders were "pretty good. The Crane Group shareholders would not be feeling that they've had a great run over the last 12 months," he said.

In its bid, Fletcher is offering one of its own shares as well as A$3.43 in cash in exchange for each Crane share it does not already own, valuing the deal at A$740 million ($990 million). Before announcing its takeover offer, the New Zealand company secured a 14.9 per cent stake of the Aussie firm, of which 13.1 per cent came from institutional shareholders.

Fletcher chief executive Jonathan Ling told reporters last week that the company was "taking a lot of comfort" from the response of institutions to that initial acquisition.

"Clearly [institutional shareholders] have demonstrated by their actions that they are unhappy with the performance of Crane Group as a stand-alone business," said Mercer.

Speaking last week, Ling said the Australian firm would be run as a division of Fletcher, not as a separately listed company. Fletcher would appoint a chief executive to run what he called "this new division".

Ling said Fletcher Building had provided its investors with a total return of 435 per cent since it listed as a separate company in 2001, while Crane delivered just 93 per cent to its shareholders over the same period.

The company would fund the takeover through issuing 67.3 million of its own shares for A$400 million, as well as borrowingA$340 million from existing undrawn bank facilities.

If its bid for Crane proves a success, Fletcher Building will become the 58th-biggest company on the ASX, up from 64th.

It is the largest company listed on the NZX, with a market capitalisation of $4.7 billion.

Fletcher's share price on the NZX closed steady at $7.73, while Crane's stock closed down 14c at A$9.35 on the ASX.

BATTLE BUILDS

How the hostile takeover will work:

* A bidder's statement from Fletcher Building will be lodged with the Australian Securities and Investments Commission (ASIC) for review within the next few days.
* When ASIC has completed its review, the document will be distributed to Crane's shareholders.
* The statement will give Crane investors the option to accept Fletcher's offer, which is conditional on 90 per cent shareholder acceptance.
* Crane will also send out a "target statement" - that company's view on the deal and any information it wants to put forward to its shareholders.

- Source: Philip King, Fletcher Building

END TO FORMICA ROW RELEASES $16.2M

Fletcher Building has settled a dispute relating to the previously acquired Formica business, releasing US$12 million ($16.2 million) of funds held in escrow to the building firm.

When Fletcher Building acquired Formica in 2007 from private-equity firms Cerberus Capital Management and Oaktree Capital Management for US$700 million, it agreed to pay up to US$50 million if certain cost-saving initiatives were implemented.

It paid US$28 million in milestone payments relating to two of the five initiatives. Of this, US$18 million has been held in escrow, and US$10 million was paid to Cerberus.

The balance of US$22 million was not paid, as the other three cost-saving initiatives were disputed. It is this dispute which is now settled.

Fletcher Building said that under the deal, it will get back US$12 million of the US$18 million of funds held in escrow and Cerberus will get US$6 million. No further payments will be made by either party and all claims and counter claims are now terminated. There was no admission of liability by either party.

The Formica acquisition coincided with a big downturn in the United States residential market, which historically represented about 20 per cent of Formica sales.

Formica Group has more than 3200 employees in 11 manufacturing and 27 distribution facilities across Asia, Europe and North America.

- NZPA