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Fletcher Building chief executive Jonathan Ling yesterday vowed to buy more businesses after his company's $1 billion purchase of United States-headquartered Formica Corporation.
In Auckland after the deal was announced, Ling said further acquisitions were "very much" on the agenda and his company had no problems competing against
private equity. Fletcher's big purchases this decade had been from private equity businesses, he said, citing Amatek, Laminex, Tasman Building Products and now Formica.
Fletcher had diversified out of New Zealand to such an extent that revenue from its domestic businesses could soon fall from 61 per cent to below 50 per cent, he predicted. But just when that threshold would be crossed would depend on Fletcher's next acquisition.
The purchase of Formica - the world leader in decorative surfacing products, with businesses in Asia, Europe and North America - will make Fletcher Building the world's biggest maker of laminated board.
The US$750 million purchase - or $1.05 billion in local currency after transaction costs - is being funded by a mixture of equity and debt. Debt of $742 million is being raised to settle the purchase, which Ling described as "an uncontested process", pushing Fletcher's total debt to $1.8 billion.
A book build to raise $300 million from institutions led by Goldman Sachs JBWere closed last night about four times oversubscribed. The shares will be sold for between $12.50 and $12.60. They closed on Tuesday at $12.65. Fletcher shares were on a trading halt yesterday during the book build, but hit a record high of $12.90 on Monday.
Ling said Formica had annual revenue of US$737 million and operating earnings - or earnings before interest, tax, depreciation and amortisation - of US$75 million last year.
Fletcher, which was advised by Deutsche Bank, expects ebitda of US$94 million before synergies for the year to June 30, 2008.
Ling said the complementary nature of Formica would enable cost synergies, rising from $13 million next year to $24 million by 2009.
The purchase - which is subject to US regulatory approval - would give Fletcher a truly global laminates business and would increase its geographic and earnings diversity, he said.
The vendors are private equity investors Cerberus Capital Management LP and Oaktree Capital Management, which were advised by Goldman Sachs JBWere.
They bought the company out of Chapter 11 - a bankruptcy protection clause in the US which allows companies to restructure themselves - in 2004 and have restructured the business. Since then, its operating earnings have nearly doubled.
Rob Mercer of Forsyth Barr praised the deal, saying Fletcher brought a conservative and disciplined approach to its acquisition.
Fletcher's 12-month price target was being revised up 40c yesterday to $14, he said.
Andrew Mortimer of First NZ Capital also applauded the deal.
"They're beginning to create a pretty good global market structure in high-growth areas in businesses they know," he said, predicting a rising share price.
Globetrotting chief hails three years of hard work
Jonathan Ling began working on the Formica Corp acquisition when he was the Melbourne-based chief of Fletcher's Laminex Group.
The Formica purchase was in the pipeline for three years, he disclosed yesterday, initiated when he headed Fletcher's laminates and panels division and long before he got the top Fletcher job last year. Ling outlined how Fletcher and Formica had a long and close working relationship. Fletcher bought Laminex in 2002 and it was that deal which gave Fletcher the Formica brand rights for Australia and New Zealand.
Since investigating buying the group, Ling said he had made many trips to Formica's Cincinnati headquarters and to Los Angeles, where its private equity owners are based. During the 1990s, Laminex and Formica were sister companies within the global conglomerate BTR Nylex Group, he said. Both were sold to private equity.
"This is a terrific opportunity to bring them back together again," said an excited Ling, flanked by chief financial officer Bill Roest.
Former Fletcher chief Ralph Waters was in charge at the time discussions began with Formica, Ling said. "This is also one of those cases where we maintain the momentum in a project when CEOs change," Ling said.
He also told how he coped with the regular long-haul flights to the US by leaving Auckland in the evenings, sleeping on the flight over, working a full day, then sleeping on the return leg.
