Fletcher offloads Formica for $1.2b

Fletcher Building’s sale of Formica Group for $1.2 billion marks a move back to a simplified business model for the listed construction giant, investment adviser Jeremy Sullivan of Hamilton Hindin Greene says.

‘‘It’s a big change in strategy from wanting to be a global player to focusing more on Australia and New Zealand,’’ he said.

‘‘The other part of the change is the winding down of the building and interiors business.

‘‘So instead of covering the world stage as well as building things, the company will become more of a materials supplier for other people in construction.

‘‘The directors’ announcement about resuming dividends shows it’s a solvent company and they are confident about cashflows. Their banks will be pleased.’’

Fletcher Building shares bounced up to $5.16 each on the news, before settling back to close at $4.93 yesterday. Sullivan said this was still below the levels of several years ago. Jeremy Sullivan, Hamilton Hindin Greene

New Zealand Shareholders Association chief executive Michael Midgley said he hadn’t had time to fully digest the move but was mindful that more than $4b had been wiped off the the collective value of Fletcher shares in recent years.

The buyer for Formica, which employs 4300 in North America and Europe, was Broadview Holding BV, an industrial holding company that has a focus on materials technology and energy.

The sale is subject to conditions, including regulatory approvals.

Fletcher Building chief executive Ross Taylor said the sale of Formica completed a strategy to exit ‘‘non-core businesses’’.

It followed the sale of Roof Tile Group in November this year.

‘‘We are pleased to have signed the sale agreement in line with our target timing, and to have achieved a strong valuation for the business,’’ Taylor said.

‘‘We believe Broadview is a natural owner of Formica, being a leading player in the laminates industry. We are confident that the regulatory process required to complete the sale will go smoothly, and on that basis expect the sale to be completed by the end of 2019.’’

Taylor confirmed the intention to reinstate dividends in 2019, with an interim dividend to be declared after finalisation of the company’s half-year results on February 20 next year.

The decision to reinstate the dividend was based on Fletcher Building directors’ confidence in the company’s return to profitability next year.

The sale proceeds from the Formica transaction will be subject to certain deductions, including pension liabilities and other debt-like items retained in the business, and transaction costs. These items are expected to total about $102 million.

Formica will be classified as ‘‘held for sale’’ and subject to an impairment test in the Fletcher Building accounts in 2019.