Paul Panckhurst: Patience makes perfect for Fletcher Building

One of the most encouraging things about Fletcher Building's latest big splurge - shelling out $582 million for the Amatek building products group in Australia - is the evidence, yet again, that it is a highly disciplined buyer.

"We were very patient," said chief executive Ralph Waters after the deal was announced on Tuesday. This final group of Amatek businesses - Insulation Solutions, Rocla Pipeline Products, Rocla Quarry Products and Stramit - had been on Fletcher Building's watch list for acquisitions since 2001.

Fletcher Building had already taken a big bite out of Amatek with the purchase of wallboard manufacturer Laminex for $754 million in 2002. Amatek put Insulation Solutions, a glasswool insulation maker, up for grabs in the middle of last year.

But, as Waters tells it, Fletcher Building bypassed Amatek and its corporate adviser, Caliburn, by going straight to private equity investor CVC Capital Partners, in London, with a proposal for buying the lot. Not just the insulation business, but also the sand quarries, the concrete pipe maker and the steel roofing maker.

(One bit ended up as an exception - Rocla Concrete Ties, a United States-based pre-cast concrete maker.)

That was last August. Fletcher Building saw an opportunity to knock out rival bidders for Insulation Solutions - and acquire that business for a lower multiple on operating earnings - by doing a wider deal that, probably, no other bidder could pull off.

Initially the sole contender, Fletcher Building eventually learned that the sales process was being opened up to competition. Waters is said to have retorted that if CVC wanted a contest, it had better have more than one other bidder lined up because Fletcher Building was not going to be there.

"We withdrew the day they told us it was competitive," he told a briefing of analysts this week. The company, he said, "just sat back and said, 'If we wait, it will come back to us'."

That is the way to buy a business - and a nice contrast with the auctions we are seeing as cash-rich private equity funds chase assets in Australia and New Zealand.

One thing to wonder: how long will Stramit - the steel building products business - stay within the fold? Waters acknowledges it was not a perfect fit with Fletcher Building's acquisition criteria because it operates in a sector that is fragmented and open to new competitors.

Analysts see Stramit as less appealing for Fletcher Building than, especially, the concrete pipe and insulation businesses. Stramit is a competitor with, and major customer of, BlueScope Steel.

NUDGING THE NUMBERS

Did anyone else notice that slight wrinkle in the latest results summary from casino company SkyCity? Looking at the six-monthly figures for operating profit before depreciation - one of analysts' favourite measures - we saw the earlier figures had somehow changed since they were reported a year ago by being nudged down a little.

So, for the company's money-generating powerhouse, the Auckland operation, the figure for a year ago was $104.4 million, instead of $106 million. Of course, that made the latest figure - $103.8 million - look a little better.

The changes come from treating the figures for interest income and share of associates' earnings in a new way that SkyCity says improves disclosure.

CRAFTY

Fonterra's new bid for National Foods is finely crafted and balanced.

The step-up clause lifting the offer from A$6 to $A6.20 a share if the dairy giant achieves its goal of getting 90 per cent of the Australian company should, on the face of it, be enough.

It is well within the A$6.01 to A$6.55 put forward by National Foods management and as a result carries the board recommendation.

The offer is such a leap over National Foods' share price before the bidding started that investors should be happy with the returns, even those who came late to the party.

Moreover, Fonterra is offering a full price for National Foods, valuing the firm's earnings, according to some estimates, at almost twice the rate of rivals such as Danone and Nestle.

But Fonterra's rival for National Foods, the Philippines brewer San Miguel, is less than predictable.

The savings San Miguel can extract from National Foods are a fraction of those available to Fonterra as it has few complementary operations in Australia.

But the Philippines company has a very strong balance sheet - its gearing is under 10 per cent - and a burning ambition to make it big outside its home market.

All could be revealed as early as Thursday, when San Miguel is required by Australian Stock Exchange rules to disclose if it will extend its bid of A$5.90 a share.

- additional reporting Richard Inder