Fletcher meets expectations with US$840m Formica sale

Tuesday 18th December 2018

Fletcher Building says it has sold the Formica business for US$840 million, or NZ$1.226 billion, to Netherlands-based Broadview.

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 said the sale is subject to customary conditions for a sale 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 this year after raising $750 million in fresh capital in April.

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.

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

Fletcher shares last traded at $4.83 and have dropped 33.6 percent year-to-date.

(BusinessDesk)

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