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Haier flags possible sale of FPA finance unit

Wednesday 12th September 2012

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Haier has signalled the possible sale of Fisher & Paykel Appliances' finance unit, suggesting the consumer credit business may come on the market if the Chinese manufacturer succeeds in its bid for control of the Auckland-based company.

Shares of FPA jumped about 13 percent to $1.17 on the NZX today, nearing the $1.20-a-share offer price as investors concluded it will be hard for a rival bidder to emerge given Haier has already sewn up about 37 percent of the target company.

The "potential divestment of the Fisher & Paykel Finance business" is listed among possible changes in Haier's takeover notice.

"It will come down to whether they feel finance is a core activity or whether other people would be prepared to pay a higher price than what they think it is worth," said Craig Brown, senior investment analyst at OnePath.

In the year ended March 31, the finance business generated $37.8 million of normalised earnings before interest and tax, more than three times the earnings it garnered from appliances of $11.3 million. The unit had gross receivables of $615 million as at March 31

FPA sees a recovery this year, with operating earnings from appliances of $35 million to $40 million, and earnings of $35 million to $38 million from the finance unit, whose products include the Farmers Finance Card and the Q card.

Brown says OnePath won't decide whether to accept the offer until it gets the independent evaluation.

Haier, FPA's biggest shareholder with about 20 percent, is aiming for a minimum 50 percent acceptance and has agreement from Allan Gray Australia has agreed to sell its 17.46 percent into the offer, giving Haier an interest in 37.46 percent.

That "will make it difficult for anybody else to come in and gazump them," One Path's Brown said.

The proposal values FPA at about $869 million and would see Haier pay about $695 million for the 80 percent it doesn't already own.

FPA today said it has hired First BNZ Capital and Bell Gully as advisers and confirmed its independent directors were supportive of the proposal, provided it tallies with an independent valuation of the business and in the absence of a better offer.

"The key thing in the bid is that it's only conditional on getting to 50 percent," said Matthew Goodson, portfolio manager at BT Funds Management. With Allan Gray's stake locked up "it suggests $1.20 might get them there."

Goodson declined to say whether BT would accept the offer for its FPA shares, saying it was still evaluating the proposal. A 50 percent stake would give Haier control and the ability to appoint directors, he said. The Chinese company had "massive resources" it could throw behind FPA's technology, while the New Zealand target has been forced to be relatively frugal in its spending.

FPA shareholders will be mailed a target company statement along with an independent valuation within 14 days of receipt of the takeover offer, the company said today.

The takeover requires approval from the Overseas Investment Office and is also dependent on the Reserve Bank not objecting to FPA continuing to operate an insurance business.

Haier plans to retain FPA's existing brands and businesses in New Zealand, Australia and the US, including the target company's chief executive and Auckland corporate head office, according to a summary of the offer. It will also "retain and respect the organizational culture, history and achievements" of FPA, it says.

The cash offer represents a 63 percent premium over FPA's stock price of 75 cents last Friday, before Haier disclosed its interest on Monday.

Haier effectively rescued FPA in 2009 when it acquired the holding as part of a capital raising that let the company refinance its debt. FPA got distribution into China as a result of the deal and the ability to further licence its technology.

Haier has retained UBS AG as financial advisor and Simpson Grierson and White & Case LLP as legal advisers.

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