Target wary of surprise Fletcher bid

Jonathan Ling says Fletcher Building has done a better job than Crane in managing the difficulties of the past eight years. Photo / Dean Purcell

The target of Fletcher Building's A$740 million ($983 million) hostile takeover bid yesterday reacted warily to the surprise strike from Penrose, telling shareholders to hold tight until it decided what to do.

Greg Sedgwick, managing director of Sydney-headquartered Crane Group, announced the company would hold an emergency board meeting before advising shareholders.

In the meantime, shareholders should take no action, Sedgwick said. Crane appointed investment advisers UBS and Blake Dawson.

A Crane spokesman said a formal response from the target was due under Australian law 30 days after the bid was launched.

"We will be required to put out a formal response to the offer by then. The bidders' statement must be within two weeks and the target statement within 30 days and we're not making any comment in the meantime other than that this will be carefully considered," he said.

Fletcher is offering one share and A$3.43 in cash for each of Crane's shares that it does not already own. This implies a price of A$9.35 a share, valuing the deal at A$740 million.

Fletcher's drive for rival Australasian building products, manufacturing and trade distributor Crane met with mostly positive market reaction on this side of the Tasman although some Fletcher analysts were worried.

Rob Mercer, Wellington-based Forsyth Barr analyst, said Crane complemented Fletcher and the deal would give it stronger distribution capabilities.

Emily Behncke of Deutsche Bank also reacted positively but Kar Yue Yeo of First NZ Capital was more tentative.

Other observers were critical.

"Explain where the value upside is?" an institutional expert asked. "Could this be Jonathan Ling's cane toad? Some animals eat things they shouldn't."

Just on 37 per cent of Crane is in the hands of major institutions Perpetual Trustees Australia, Schroder Investment Management Group, Suncorp-Metway and Maple-Brown Abbott.

Fletcher shares fell 12c to $7.73 after the announcement. They closed down 10c at $7.75.

Before the deal, Fletcher mounted a raid on Crane, securing 14.9 per cent.

Of that, 13.1 per cent came from institutions, a response Fletcher chief executive Jonathan Ling said indicated a supportive response.

"We are taking a lot of comfort from that," he told a media briefing.

Fletcher went into a trading halt just before announcing its tilt at Crane, although a purchase has been long awaited due to Fletcher having a $1 billion cashbox: loan facilities extended by banks and not drawn down.

Fletcher said the offer implied a substantial premium of 28 per cent of the one-month volume-weighted average price.

Crane shareholders had the opportunity to get into a bigger, more diversified business, Ling said. He criticised Crane's performance, saying Fletcher had done much better and now was the right time to make the bid.

Asked why Crane's share price had fallen lately, Ling said: "It's just a reflection of the building cycle and their performance and one of the things we believe we are communicating is the Fletcher Building performance over the last eight years has been excellent and we have managed these difficult times well."

Crane would be run as a division of Fletcher, not a separately listed public company, Ling said.

Fletcher would appoint a chief executive to run what Ling called "this new division", indicating a highly aggressive stance and a move to appoint new management from Penrose, along the same lines as its five existing divisions are run now.

Ling said Fletcher Building had delivered shareholders a total aggregate return of 435 per cent since it listed as a separate company in 2001 compared with Crane's 93 per cent over the same period.

The Money

Fletcher will fund the deal by:

* Issuing 67.3 million Fletcher Building shares for A$400m.

* Borrowing A$340m under existing undrawn bank facilities.

* Deal worth A$740m based on implied offer price of A$9.35.