Market applauds F & P split

By DANIEL RIORDAN

Fisher & Paykel's plan to unlock its healthcare riches has gone down a treat with the market, but shareholders will have to wait until well into next year before they know exactly how much they will benefit.

Acting on the recommendations of merchant bank Deutsche Bank and the findings of their own strategic review, directors are splitting F&P in two.

F&P shares jumped 66 cents to a record high of $8.26 after the decision.

John Cairns, of Cavill White Securities, said the split would make it easier for the market to price the company and would add value to the two parts.

ABN Amro's Gary Baker said the split was a positive move and should allow each part to focus more clearly.

The company's lucrative healthcare division is being spun off to create a new entity, Fisher & Paykel Healthcare, which will inherit F&P's stock exchange listing.

F&P's appliance and finance divisions will make up a new company, as yet unnamed but with a working title of Newco, which will also list on the exchange.

Both new companies will seek secondary listings on the Australian Stock Exchange and Healthcare also plans to list on Nasdaq.

At the time of separation - directors suggest this will be in the second half of next year at the earliest - F&P shareholders will own all of Newco and 60 per cent of Healthcare. The remaining shares in Healthcare will be owned by Newco directly (20 per cent) and by investors in a US offering of 20 per cent before the Nasdaq listing. Proceeds of the US offering will be used to make a cash payment to F&P shareholders to compensate them for their loss of equity in Healthcare.

The size of that cash payment will depend on the valuations made at the time of the split.

The companies will be run by separate management teams under separate boards of directors.

Mr Baker said the key thing the market would be looking at was the composition of the management teams and their directors.

But F&P managing director Gary Paykel said no decisions had been made on where F&P's management and directors, himself included, would end up.

He said tough US securities regulations restricted how much he could reveal at this stage. The unexpected complexity of the restructuring was also a factor in how long it would take to implement the plan, pending court and shareholder approval.

"To be honest, the executive has been a little bit staggered by the amount of work that's required. This has just hit us like a bomb," said Mr Paykel.

One analyst, who asked not to be named, estimated Newco to be worth $1.75 to $2.10 a share and Healthcare to be worth $6.90 to $7.50 a share.

While the plan has met widespread acceptance, pending further details, Newco's taking of a 20 per cent stake in Healthcare has raised a few eyebrows.

One analyst said the stake risked removing any takeover premium on Healthcare shares by making it more difficult for any party to mount a successful takeover bid.

Compulsory acquisition, triggered when a bidding party reached 90 per cent ownership, would no longer apply, making a takeover bid less attractive.

In the year to March, the healthcare division contributed 60 per cent of the company's pre-tax profits with profit margins (on revenue) of 36 per cent, compared with the appliance division's profit margin of 6 per cent.

Healthcare's revenues have grown at 15 per cent or more for the past five years and are expected to double over the next five years. F&P reported a record annual net profit of $54 million last year, but turned in a lower than expected six-month profit to September 30 of $23 million.

Reduced earnings from whiteware were the main culprit.