KEY POINTS:
Fletcher Building said today it would buy United States-based Formica Corporation for US$700 million ($977m) from private equity firms.
It said it would also issue shares to raise around $300m to help fund the acquisition which would be earnings positive in the 2008 fiscal year.
Ohio-based Formica is
a global manufacturer and distributor of decorative surfacing products with businesses in Asia, Europe and North America.
It has 12 manufacturing and 33 distribution facilities spread across those regions.
Its main product is high pressure laminate (HPL), but it also makes and distributes solid surface, compact laminate and engineered stone products.
Fletcher chief executive Jonathan Ling said Formica was a leading global brand with strong market positions in its key countries of operation.
Fletcher, New Zealand's second-largest listed company, will make contingent payments of up to US$50m if Formica achieves specific performance milestones.
The purchase price represented an Enterprise Value/ebitda multiple on expected normalised 2008 earnings of 7.2 times after Fletcher Building synergies.
The vendors, who retained Formica's South American business, are private equity investors Cerberus Capital Management LP and Oaktree Capital Management LLC.
In 2006, Formica had revenue of US$737m and earnings before interest, taxation, depreciation and amortisation (ebitda) of US$75m on a normalised basis.
Fletcher Building expected Formica's ebitda, for the year ended 30 June 2008 on a normalised basis, to be approximately US$94m before Fletcher Building synergies.
Fletcher Building has an existing leading market position in laminates and panels in Australasia and, through its Laminex business, already trades and owns the Formica brand in the region.
The deal is subject to regulatory approval.
Laminex had revenues of just over $1b in the June 2006 year.
"The acquisition provides a logical extension to Fletcher Building's existing decorative surface laminates business," Mr Ling said.
It would give Fletcher a chance to establish a truly global laminates platform and significantly increase the geographic diversity of its earnings exposure, he said.
Formica had high quality Asian manufacturing facilities and gave Fletcher the ability to source low-cost product into Australasia, he said.
The purchase price will initially be funded using existing and new bridging bank debt facilities and an underwritten placement of 26 million Fletcher shares raising around $300m.
Trading on the New Zealand and Australian exchanges was suspended at the company's request while the placement of shares was undertaken.
The acquisition was expected to have an immediate positive financial impact on a normalised net earnings basis. It was expected to be earnings per share accretive in the 2008 year.
After the acquisition, Fletcher's debt gearing levels will be 46 per cent and within its target range of 40 to 50 per cent.
Fletcher shares rocketed from $9.20 to $12.65 yesterday and hit a record $12.90 on Monday.
"In addition, Formica's Asian business provides a strong platform to distribute Laminex products, especially low pressure laminate, into the Asian growth markets," Mr Ling said.
Fletcher estimates synergies of $13m in the 2008 financial year, increasing to $24m in 2009.
These will arise from combined procurement benefits, production rationalisation and reduced corporate costs.
"Any increased Asian revenue achieved by Laminex through Formica's distribution network will be in addition to this cost synergy amount."
Formica recently embarked on a series of manufacturing and supply chain earnings enhancement projects in North America expected to deliver further profits. If achieved Fletcher will pay the extra US$50m.
Key staff are staying with Formica.
Mr Ling said Fletcher had a track record of successfully buying companies and intergrating them into the group.
"While global HPL markets are generally mature, growth opportunities exist in Formica's Asian and Eastern European businesses, where increased demand is expected,"Mr Ling said.
- NZPA