COMMENT:

Susan Paterson is no stranger to batting away unsolicited takeover approaches, having played a part in Abano Healthcare's aggressive rebuff of an acrimonious bid by dissident shareholders back in 2013.

Now she finds herself in the thick of the action again, this time as chairwoman of Steel & Tube, facing down a $341 million indicative offer from Fletcher Building.

While there's not quite the same bitterness as with the Abano fight, there are similarities to the playbook Steel & Tube's board has adopted in response to Fletcher's move.

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The staunch rejection of Fletcher's offer has disappointed some investors and ruffled feathers at some of the more influential institutions.

The Herald understands Paterson has booked herself a fight with shareholders ahead of Steel & Tube's upcoming annual meeting where she and fellow director Anne Urlwin stand for re-election to the board.

Susan Paterson has been chairwoman of Steel & Tube since January 2017. Photo/Supplied.
Susan Paterson has been chairwoman of Steel & Tube since January 2017. Photo/Supplied.

At the heart of the issue is Paterson's apparent reluctance for her board to engage with Fletcher and the wide gulf between the valuation range put forward by Steel & Tube's advisor FNZC and a discounted $1.15 a share placement just six weeks earlier.

Shareholders barely had time to taste Fletcher's revised offer of $1.90 a share, plus a 5c special dividend, when the construction company announced it had pulled its offer from the table, with chief executive Ross Taylor saying attempts to engage with Steel & Tub's board had proven unsuccessful.

Steel & Tube shares fell back to around $1.40 earlier this week having climbed as high as $1.73 on news of the increased offer. The stock was at $1.40 before Fletcher's interest was made public. This morning, the shares were up 4 per cent to $1.55 after news of BlueScope's investment.

Paterson has said the Steel & Tube board viewed the initial indicative offer of $1.70 a share as unwelcome as it undervalued the business. The revised $1.90 a share offer still fell short of Steel & Tube's advisors' valuation range of $1.95 to $2.36 but the board was prepared to commission an independent expert report that would take up to four weeks.

That report is no longer required given Fletcher's subsequent withdrawal.

A further twist was added this morning when ASX-listed BlueScope Steel was revealed to have bought Milford Asset Management's 15.8% stake in Steel & Tube for $46m ($1.75 a share).

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Whether this leads to further takeover interest is unclear, although BlueScope said it has no intention of taking over Steel & Tube.

Milford, along with Harbour Asset Management, had supported Fletcher's offer to acquire Steel & Tube. State-owned ACC is also understood to have been in support of Fletcher's offer with a 5% shareholding.

Fletcher said on Monday it had been trying to engage with Steel & Tube for five weeks, which would have provided ample time for the board to seek independent valuation advice.

Considerable uncertainty

Salt Funds managing director Matt Goodson says the decision by Steel & Tube's board not to engage an offer at a significant premium is surprising, especially since the company recently raised equity at $1.15 a share.

"It's remarkable that a board can issue equity at such a price and then turn around and say we are worth more," Goodson says.

"The new management team has put some projections out there but there is considerable uncertainty around those projections."

Goodson is referring to recent earnings guidance of $25m for the year ending June 2019 and the board's intention to resume dividend payments this financial year.

He suggests Steel & Tube's board may have been too eager to see Fletcher off, especially since the construction market has plateaued.

"One wonders if the board has bought too much into the new management's outlook of a shiny new future. The harsh reality is the company has been sharply underperforming and failed to capitalise on the upward cycle.

"Not to examine this [offer] is disappointing from our point of view, even though we are only a small shareholder."

Salt Funds Management's Matthew Goodson. Photo/file
Salt Funds Management's Matthew Goodson. Photo/file

Another fund manager, who asked not to be identified, echoed Goodson's comments.

"To say some investors are not happy is correct.

"Steel & Tube's board pushed hard and didn't roll over and you could say the deal wasn't as good on paper as it could be so maybe a different structure would be better.

"But one would encourage the two companies to keep talking … Steel & Tube needs to think about how it's going to grow from here."

Fletcher had been trying to advance a scheme of arrangement acquisition approach, which has a lower threshold to climb than a normal takeover but requires agreement with Steel & Tube directors, who have said that any attempts to amalgamate the two companies would face opposition from the Commerce Commission.

From Fletcher's angle there are lingering questions as to why the company would embark on another acquisition given its recent poor history in that department, plus the fact it is still recovering from massive write-downs stemming from its Building + Interiors division.

At the same time Steel & Tube does tick a lot of boxes in terms of a strategic buyout and both companies insist they are in turnaround mode after recently raising capital at a steep discount.

The problem for Paterson now is she has got offside with major shareholders and is likely face opposition to her re-election at the AGM next Thursday.

In a letter to shareholders posted to the NZX this morning, Paterson reiterated Steel & Tube's explanations for rejecting Fletcher's initial approach and intentions to appoint an independent advisor to assess the revised offer.

She said it was "surprising" Fletcher announced it was withdrawing its offer shortly after Steel & Tube informed the market of the revised price.

"I can assure you that your board took all appropriate steps in a timely manner to respond to Fletcher Building, engaging advisers to act on Steel & Tube's behalf for both valuation and the challenging issues for clearance under the Commerce Act (the outcome of which in the view of your board was difficult to assess and problematic)."

She appealed to shareholders who weren't able to attend the AGM to appoint a proxy, "such as myself as chair, to record your support for the company".