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Crane bid may take Fletcher into ASX

Friday 4th February 2011

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Fletcher Building may be included in Australian stock market indices if it succeeds in taking over Australia's Crane Group, according to an independent report by Ernst & Young.

The report finds Fletcher Building's upped offer for the Australian building supplies firm to be fair and reasonable. Fletcher Building's cash and scrip bid has an implied value of A$10.07 a share, which is within the A$9.92 to A$11.56 range of value assessed in the report.

On the day prior to the bid, Crane had a market capitalisation of A$607 million and Fletcher Building had a market capitalisation of A$3.619 billion.

Fletcher Building, while well represented in all major NZX indices, is not currently included in any major stock indices in Australia, the report said.

"It is possible that with a greater market capitalisation and a greater number of shares listed on the ASX, Fletcher Building may be included in some Australian stock market indices," Ernst & Young said.

It said that in October 2010, S&P and ASX jointly released a consultation paper suggesting changes to the way that New Zealand companies are treated for index inclusion and in February 2011, the S&P Australian Indices Index Methodology was revised to accommodate the proposal.

"If it occurs, the inclusion in and weighting of Fletcher Building shares in relevant indices has the potential to increase demand for its shares particularly with those institutional funds who seek to track market levels of performance," the report said.

Fletcher Building made the bid without seeing Crane's books, so the value of the benefits from putting the two businesses together has been a topic of interest to analysts.

Ernst & Young said it was likely that reasonable gains may be realised by absorbing many Crane Group head office functions into Fletcher Building's corporate structure and operational synergies.

"We have had discussions with Crane management in relation to their views as to the synergies that may be able to be realised by Fletcher Building and note that they include synergies of the nature referred to above including the elimination of a large part of the existing corporate costs structure of Crane of around $20 million per annum," the report said.

In New Zealand, Crane operates more than 100 trade related wholesale distribution outlets under the Mico Bathrooms, Mico Plumbing and Pipelines, Corys and MasterTrade brands.



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