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Fletcher Building, New Zealand's third-largest listed company, is in a US$21 million ($39.4m) fight over its $1 billion purchase of giant United States manufacturer Formica Corporation.
Fletcher, with a $2.8 billion market capitalisation behind Telecom Corp and Contact Energy, revealed yesterday that legal proceedings were lodged against the company last week in the US.
Fletcher bought Formica from US private equity firms who are now suing over payments due if the business achieved set targets, agreed at the time of purchase.
"Under the sale and purchase agreement for the acquisition of Formica Corporation, Fletcher Building agreed to make certain milestone payments to the vendor in respect of the year ended June 30 2008, provided certain cost saving initiatives were implemented," Fletcher said in a prospectus for its capital notes issue.
"To date, Fletcher Building has paid US$28 million in respect of the achievement of two out of the five initiatives.
"Fletcher Building is in a dispute with the vendors over the achievement of three of the other initiatives.
"On November 18, the vendors filed proceedings against Fletcher Building in the Supreme Court of the State of New York seeking damages of at least US$21 million, interest and such other relief as the court considers appropriate."
Fletcher executives have already admitted there were some problems with Formica.
Jonathan Ling, Fletcher's chief executive, told this month's annual meeting in Auckland that Fletcher had closed a Californian Formica factory and doubled production at the Ohio factory.
But the project was taking longer than expected.
