Article – BusinessDesk

Dec. 18 (BusinessDesk) – Fletcher Building says it has sold the Formica business for US$840 million, or NZ$1.226 billion, to Netherlands-based Broadview and will resume paying dividends.UPDATE: Fletcher meets expectations with US$840m Formica sale
(Updating with share price details and investor and analyst comment from third paragraph)

By Jenny Ruth

Dec. 18 (BusinessDesk) – Fletcher Building says it has sold the Formica business for US$840 million, or NZ$1.226 billion, to Netherlands-based Broadview and will resume paying dividends.

The sale price is comfortably within the NZ$1-1.3 billion range the market was expecting and the date of the announcement was well short of the up to 18-month timeframe that managing director Ross Taylor suggested when he announced the decision to sell in April.

Fletcher shares jumped as much as 7 percent to $5.16 after the announcement before easing to $5. The shares are still down 31.3 percent year-to-date.

“I think people will be comforted by the sale, given the degree of macro volatility we’ve seen out there,” said Matt Henry, an analyst at Forsyth Barr.

The benchmark NZX50 Index, which includes dividends, is up 3.3 percent for the year currently but has fallen 7.6 percent 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,” Sherrock said.

“It’s nice to see that the dividend will be reinstated,” he said. 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.

“The divestment of Formica completes our strategy to exit non-core businesses, having already completed the sale of the Roof Tile Group in November,” Taylor said in a statement.

“Our five-year strategy is to refocus Fletcher Building’s capital and capability behind our New Zealand and Australian businesses with building products and distribution at our core,” he said.

“We are pleased to have signed the agreement in line with our target timing and to have achieved a strong valuation for the business. We believe Broadview is a natural owner of Formica, being a leading player in the laminates industry.”

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 euro.

Taylor said he’s confident the necessary regulatory approvals will be completed smoothly and he expects the sale will be completed within Fletcher’s financial year ending June 2019.

He said the company will complete the sale first and 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.

Sherrock said the sale will leave Fletcher with very little debt. “I hope they’re wise as to how they deploy the cash,” he said.

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 US$140 million more than the US$700 million it paid for it.

Taylor confirmed the company’s intention to resume paying dividends, beginning with a first-half dividend to be declared when it announces its first-half 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 full-year 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 “debt-like items retained in the business and transaction costs.”

These are expected to total about US$70 million, or NZ$102 million. Formica will also be classified as ‘held for sale’ and subject to an impairment test in the Fletcher first-half accounts.

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 the countries in which Formica operates.

(BusinessDesk)

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