Fletcher tempts private equity
Company denies receiving any takeover or merger offers
Acollapse in Fletcher Building’s share price has likely caught the attention of strategic buyers looking to snap up the beleaguered construction giant, an analyst says.
The dual-listed company’s share price tanked in recent weeks following a half-year results announcement that included a 26.7 per cent drop in earnings before interest and tax, an after-tax loss of $120 million and the resignation of its chair Bruce Hassall and chief executive Ross Taylor.
At the start of February, its share price sat at $4.50 but dropped to as low as $3.35 in the wake of the results.
However, its share price recently jumped about 10 per cent on the back of a report in The Australian publication that Fletcher Building had attracted a buyout proposal.
A Fletcher Building spokeswoman told BusinessDesk it had not received any takeover or merger offers.
“We have had no such approaches — the implications made in The Australian article are baseless,” the spokeswoman said.
Jarden equity research director Grant Swanepoel said it was to be expected that private equity (PE) would be interested in Fletcher Building after its share price fell.
“You could have predicted when the share price fell to the extent it did that there would come a time when PE companies would start looking at the break-up value of Fletcher Building,” Swanepoel said. “It doesn’t mean they’re actually coming in and making an offer, but they are coming in and having a look at it.”
There were some “very valuable” parts of Fletcher Building and some parts that had risk associated with them, and those parts with risk had resulted in the share price collapse.
It was trading at a level reflecting a company in a sector that was at the bottom of its cycle, combined with a high level of negative news surrounding Fletcher Building, he said.
A low share price would have the board considering its options of how to free up capital, and a partial buyout, or carving off parts of the company, was potentially being looked at as part of a strategic review.
“Any unlocking of cash would unlock value within the share price.”
Fletcher Building did not appear to run that well as a conglomerate, Swanepoel said.
“It doesn’t appear to have a nimble idea of how the market is moving in front of each of the divisions, how the competitors are moving and to be able to react very quickly to that.”
Either that aspect of the business needed to be fixed or it needed to be streamlined, Swanepoel said, adding that he did not see many hurdles in the way of an overseas buyer getting Overseas Investment Office approval.
Forsyth Barr equities senior analyst Rohan Koreman-Smit said there had been a general uptick in merger and acquisition activity in Australia’s construction sector.
“Building materials businesses in this part of the world have become much more prominent on the radar of strategic buyers,” Koreman-Smit said.
Recent mergers and acquisitions in the construction industry, rather than the media report itself, had likely influenced the recent share price rise. Fletcher Building had a few issues clouding what was a profitable core business, namely problems at its
Any unlocking of cash would unlock value within the share price.
Jarden equity research director Grant Swanepoel
Western Australian pipes business Ipex and the New Zealand International Convention Centre final cost, Koreman-Smit said.
A potential buyer would likely need to make an offer for the business as a whole, he said.
“Fletcher knows that its core New Zealand operations are the jewel in its crown. They’re not going to sell those.”
Forsyth Barr currently had an outperform rating on Fletcher Building with a 12-month target share price of $4.80.
A recent Forsyth Barr report said mergers and acquisitions would be a distinct theme in 2024. “M&A is notoriously difficult to forecast, at least with regards to specific deals. They tend to make a lot of sense after the fact,” it said.
Companies trading on a deep discount to book value and/or high free cashflow yields and low price-toearnings ratios may attract bargain hunters and turnaround specialists, it said.