Fletcher sells Formica to Broadview for $1b

AUCKLAND: Fletcher Building says it has sold the Formica business for $US840 million ($NZ1.226 billion) to Netherlandsbased Broadview and will resume paying dividends.

The sale price is comfortably within the $NZ1 billion to $NZ1.3 billion range the market was expecting and the date of the announcement was well short of the up to 18month timeframe managing director Ross Taylor suggested when he announced the decision to sell in April.

Fletcher shares jumped as much as 7% to $5.16 after the announcement before easing to $5. The shares are still down 31.3% yeartodate.

‘‘I think people will be comforted by the sale, given the degree of macro volatility we’ve seen out there,’’ Forsyth Barr analyst Matt Henrysaid.

The benchmark NZX50 Index, which includes dividends, is up 3.3% for the year currently but has fallen 7.6% from its high in September.

Michael Sherrock, a portfolio manager at Nikko Asset Management, said he had been expecting an announcement before Christmas but had become a little anxious as the days went by.

‘‘The price is fair to good and the fact that they’ve got it done in a tough market is pretty good,’’ he said. ‘‘It’s nice to see that the dividend will be reinstated.’’

Fletcher last paid a dividend in October 2017.

Fletcher said the sale is subject to customary conditions for a transaction of this nature, including regulatory approvals.

Broadview is an industrial holding company with a focus on materials technology and energy. It is listed on the Amsterdam stock exchange with a market capitalisation of about ¤11 billion ($NZ18.2 billion).

Mr Taylor said he was confi dent the necessary regulatory approvals would be completed smoothly and he expected the sale would be completed within Fletcher’s financial year ending June 2019.

He said the company would complete the sale first then take ‘‘a prudent approach’’ to management of its balance sheet.

Fletcher had term debt of $1.75 billion on its balance sheet at June 30 after raising $750 million of fresh capital in April.

Mr Sherrock said the sale would leave Fletcher with very little debt. Fletcher has a track record of making poor acquisitions, the Formica purchase in 2007 among them. After 11 years of ownership, the sales price is just $US140 million more than the $US700 million it paid for it.

Mr Taylor confirmed the company’s intention to resume paying dividends, beginning with a firsthalf dividend to be declared when it announces its firsthalf results in February.

‘‘The board will size the dividend prudently, having regard to the ongoing capital requirements of the company. Given the expected settlement timing of the Formica sale, the fullyear 2019 dividend is likely to be weighted towards the final dividend,’’ Fletcher said.

The proceeds will be subject to ‘‘certain deductions,’’ including pension liabilities and other ‘‘debtlike items retained in the business and transaction costs.’’

These are expected to total about $US70 million. Formica will also be classified as ‘‘held for sale’’ and subject to an impairment test in the Fletcher firsthalf accounts.

Mr Henry said Formica’s book value was about $1.1 billion at June 30.

The regulatory approvals relate to competition regimes in a number of countries in which Formica operates. — BusinessDesk

❛ The price is fair to good and the fact that they’ve got it done in a tough market is pretty

good