By Jenny Ruth
Monday 17th January 2011
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Allowing for potential synergies from more efficient management of Australia-based Crane Group under Fletcher Building's management, its A$9.35 (NZ$12.05) a share takeover bid will be at effectively between 10 and 12.6 times earnings, says Kar Yue Yeo, an analyst at First NZ Capital.
That's rather than the "headline" 19 times forecast 2011 earnings and 14 times 2012 earnings "which attracted criticism from some quarters," Kar Yue says.
He sees between $10 million and $30 million in savings of corporate costs - the managing director and chief financial officer are estimated to cost A$6 million of Crane's corporate overhead.
"Given the other potential areas of overlap in corporate structures (for example accounting, human resource, finance, business administration, legal, non-executive directors' fees, listing costs) a pretax A$10 million savings ... seems attainable."
"We regard Fletcher's proposed takeover of Crane as neither hugely expensive nor highly value accretive for Fletcher's shareholders because of the execution risks on the synergies and uncertainly over the Australian housing cycle," he says.
A successful takeover will further expand Fletcher's Australian portfolio and diversify its reliance on the New Zealand economic cycle.
"Management backs itself to leverage Fletcher's operating model into Crane and deliver additional returns for Fletcher's shareholders."
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