Fletcher share sale to pay for Amatek

Construction and building products company Fletcher Building could sell shares at a discount of more than 4 per cent to partially fund the purchase of Amatek Holdings.

The company is issuing 20 million new shares through a tender to institutional investors to help fund the A$530 million ($579 million) price for the privately owned Sydney insulation and building products firm.

Clark Perkins, of organising brokers Goldman Sachs JBWere, said at the floor price of $6.75, the underwritten share sale would raise $135 million.

At that price, the issue would be about 4.5 per cent below the company's last traded price of $7.07 before it was placed on a trading halt on Tuesday.

An auction to institutions began at 2 pm yesterday and allocations will be finalised before the market opens today.

Fletcher Building has spent A$875 million expanding in Australia since 2002, acquiring wallboard maker Laminex and Tasman Building Products as it moved to diversify earnings and chase growth.

"We can't see too many more on our list that will match these three (Amatek, Laminex and Tasman), but pleasingly we've got them," Fletcher Building chief executive Ralph Waters told a briefing in Auckland.

Fletcher would not have paid more for Amatek, in part because slowing residential building in Australia and New Zealand made the purchase riskier than the Laminex and Tasman deals, Waters said.

The price allowed for some market decline in the next year. Amatek expected earnings before interest and tax (ebit) of about A$63 million for the year to June 2005, on estimated sales of A$808 million.

James Lindsay, of Tyndall Investment Management, said: "This will be earnings-accretive almost immediately, so you will see valuations for the business rise on the back of this acquisition."

The price is 6.2 times enterprise value to earnings before interest, tax, depreciation and amortisation - or as low as 4.9 times if synergies and A$60 million of tax losses in the business are included.

Some questions at the briefing focused on the low-margin Stramit, the steel-roofing business that accounts for most of Amatek's revenue, but a minority of profits.

Waters said Stramit's major supplier, BlueScope Steel, could renegotiate a supply contract with Stramit as a result of the change of ownership. One analyst asked if Australia's competition authority would allow BlueScope to buy Stramit, but Waters said: "I couldn't predict what they would say."

The purchase will be 77 per cent debt funded, boosting Fletcher Building's debt level to 47.5 per cent from 38.7 per cent as at last December 31.

Before the purchase, Fletcher Building had raised its forecast for full-year ebit to be in the range of $525 million to $545 million, up 10 per cent on previous guidance.

Amatek, mainly owned by funds managed by British-based CVC Capital Partners, comprises Insulation Solutions, which makes glasswool and foil insulation, concrete pipe maker Rocla, Rocla Quarry Products and Stramit.

Fletcher Building would become the biggest insulation manufacturer in Australia and New Zealand.

- REUTERS, additional reporting staff reporter