Fletcher should not increase bid, says analyst

Monday 24th January 2011

Fletcher Building should not raise its bid for Australian building supplies company Crane Group, according to an analyst.

Crane Group has rejected Fletcher Building's cash and scrip offer, which is worth A$9.35 (NZ$12.16) a share. Last week it released unaudited management accounts for the six months to December 31 showing a 17% rise in profit and said the rebuilding of areas of Australia devastated by floods should boost sales of its products.

Fletcher Building argues that it will manage the company better.

Credit Suisse believes that the bid "might just fly" and Fletcher Building does not need to raise the price.

Crane had limited alternatives to crystallise more value for its shareholders in the next 12 months, Credit Suisse said. It would be challenging for Fletchers to justify a higher bid to its owns shareholders as the size of potential costs savings were uncertain and Crane's operating environment was patchy.

Credit Suisse sees Fletcher Building shares as potentially worth more than $10 in the next few years, arguing its current share price is affected by the risks associated with a recovery in the residential and nonresidential building markets.

It said Fletcher Building's shares were "cheap on a mid-cycle basis". Fletcher Building shares closed up 4c at $7.81 today.

Crane Group is paying an interim dividend of 22 Australian cents a share, which is up 4 cents per share on last year. The record date for the dividend is February 14 and the dividend is payable on February 22.

"The benefit of the considerable work undertaken over the past two years to improve the underlying performance of our businesses is now being seen," Crane chief executive officer Greg Sedgwick said last week.

"Material improvements in earnings are being recorded as demand in a number of customer market segments begins to improve."

The New Zealand Commerce Commission has said that it sees the manufacture and supply of pipes and pipe systems as the main area of overlap in this country between Fletcher Building and its takeover target Crane Group.

NZPA

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