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F&P Appliances climbs to just above Haier offer after valuation

Thursday 4th October 2012

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Shares of Fisher & Paykel Appliances rose just above Haier's $1.20-a-share takeover offer after an independent valuation deemed the proposal too low, suggesting the market expects only a minor uplift from the Chinese company.

The stock rose 2.1 percent to $1.23 after the Grant Samuel valued the company at between $1.28 and $1.57 a share and FPA's independent directors urged shareholders to reject the offer.

Prior to Haier unveiling its offer last month the stock hadn't traded as high as $1.20 since September 2008. Haier New Zealand chairman Liang Haishan said the independent valuation "is overly optimistic and does not adequately take into account the risks contained in the (target company's) five year strategic plan."

"It is early days," said Greg Easton, an adviser at Craigs Investment Partners. "The market is perhaps not expecting an offer of that much more. Haier could potentially get to 50 percent with its existing $1.20 a share offer."

Haier already has agreement from Allan Gray Australia to sell its 17.46 percent holding into the offer, giving it a total of about 37 percent and suggesting it could get to its minimum target of a controlling stake if only a handful of other institutions accept the price.

"Shareholders will need to decide whether they are willing to take the significant risk inherent in Fisher & Paykel Appliances attaining its five-year strategic plan, or accept our offer which, if successful, provides shareholders a certain cash payment and is just 6.7% lower than the bottom end of the independent adviser's valuation range," Liang said.

Haier's statement today concludes that the company "reserves the right to make changes to these intentions, but would only do so after consultation with the board of Fisher & Paykel Appliances. Craigs' Easton said the statement reads as a message that Haier doesn't plan to go raise its price.

Grant Samuel said Haier's offer implies a multiple of 10.9 times normalised earnings before interest, tax, depreciation and amortisation for 2012 and 7.1 times forecast ebitda for 2013. The historical multiple "is below that implied by comparable transactions and below the multiples implied by the share prices of comparable listed companies," it said in its report.

It noted that the timing of Haier's offer is consistent with FPA's progress in a range of initiatives including product development since the Chinese company acquired its holding in 2009 via a placement and rights issue. Grant Samuel noted that if not for Haier's support back then the rights issue would have been priced lower. Haier paid $82 million, or an average 57 cents a share to acquire its original holding.

Grant Samuel said speculation has been rife that a rival offer or blocking shareholder may emerge, with talk that appliances companies such as Bosch or Whirlpool could get involved. It noted that to date no rival of Haier has emerged with a substantial holding in the target company since the offer was unveiled.

The advisory firm said benefits and opportunities from Haier taking full control included both the appliances and components & technology businesses generating greater cash flows than are currently forecast by management.

There would be opportunities for plant rationalisation, wider use of FPA's direct drive motors beyond washing machines and into areas such as air conditioners, and rising profits for PML, the F&P Production Machinery unit, in assisting Haier to upgrade its existing factories. Such benefits would more easily be achieved if Haier owned at least 50 percent of FPA, it said.

It noted that FPA was "a very small player in a market dominated by very large companies" and is "unable to refresh its product range as often as other manufacturers, in part because of resource constraints."

FPA was in the middle of a rebuilding phase and that meant Haier's offer price of $1.20 a share "is not a compelling proposition particularly given the relatively early stage of the implementation of FPA's comprehensive rebuilding strategy."

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