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Fletcher Building's market value soared by more than $600 million yesterday and its share price hit a record on the back of the company's Formica purchase.
The stock hit a high of $13.42, up 77c from $12.65 before Wednesday's trading halt. Shares closed at $13.27.
Trading resumed yesterday after a book build to raise money for the $1 billion purchase of Formica, the United States decorative services firm, announced on Wednesday.
Fletcher placed 26 million shares at $12.60, raising $327 million at a discount to the market price of just 5c.
The book build, combined with the share price spike, boosted the company's market capitalisation by $639 million to $6.63 billion.
Analysts were bullish about the value of Fletcher's latest acquisition. Blair Cooper of Citigroup said the Formica deal was "difficult to fault".
He pushed up his earnings forecast by 4.7 per cent for the 2008 year and up 7.5 per cent for the 2009 year.
But he said he had yet to factor in revenue synergies expected once the Formica business was integrated into the Fletcher conglomerate.
Cooper predicts Fletcher will report core net profit of $388.1 million this year, $457.8 million next year, rising to $502.4 million by 2009.
The company was capable of delivering double-digit growth in the next two years at least, he said, revising the 12-month target share price from $11.65 to $12.30.
The structure of the Formica deal was "great" due to the five-month due-diligence period and a close relationship with the private-equity US vendors developed over three years.
Dennis Lee of ABN-Amro Securities was also bullish, predicting a net profit of $387.3 million this year, followed by $448.5 million in 2008 and $494.1 million by 2009.
He also revised the target share price from $12.52 to $12.87 and was confident Fletcher would delivery synergies from the Formica buy.
"In our view, this is a good acquisition and is timely from a currency perspective," he said. "The transaction appears to represent good value for Fletcher shareholders."
Lee said Formica's performance had been disappointing until private-equity investors bought it under Chapter 11 in 2004, shed unprofitable operations and built a new plant in China.
