Wesfarmers into Fletcher: source
WELLINGTON: Fletcher Building shares jumped 13% yesterday after the Sydney
Morning Herald reported that Wesfarmers had acquired a small stake in the company in a possible precursor to a full takeover.
Fletcher rose 75c to $6.59 on the NZX, having sunk to its lowest levels in almost six years last week.
The SMH cited sources close to Wesfarmers as saying it had bought between 3% and 4% of Fletcher, which would amount to up to about 27.9 million shares. There have been no trades of that size this year, although a stake could be built up gradually.
Investors said there was no sign of a large buyer in the market and it is not clear whether the report is correct, although it could make strategic sense for Wesfarmers, which acquired the struggling Coles Myer business in 2007 as a turnaround target.
Wesfarmers acquired Coles along with Kmart, Target and Officeworks for $A22 billion in 2007 and the supermarket chain now makes up about a third of its earnings.
At the time of the acquisition, Coles had been losing market share and facing declining sales and earnings.
Wesfarmers had picked up a small stake in the business before launching a takeover.
Last month, Wesfarmers managing director Rob Scott announced plans to spin off Coles, which had been transformed into ‘‘a mature and cashgenerative business’’.
‘‘Conceptually for Wesfarmers could it make sense? Absolutely,’’ said Matthew Goodson, managing director at Salt Funds Management.
‘‘Coles Myers was a large business with temporary issues. Fletcher is in the same position in a broad conceptual sense.’’
Fletcher stock has dropped about 18% in the past 12 months, shrinking its market capitalisation to about $4 billion. Fletcher slumped to a $273 million loss in its first half, driven by losses at its Building + Interiors unit, and chief executive Ross Taylor has embarked on a strategic review of the entire company, details of which will be announced in June.
It had to get waivers from lenders after breaching covenants and is still in talks with its US noteholders and bank syndicate to negotiate new lending terms. — Scoop