Fisher & Paykel directors - don't accept Haier

Workers make driers at one of Fisher and Paykel's factories. File photo / Glenn Jeffrey

Fisher & Paykel Appliances' independent directors have urged shareholders to reject Haier's takeover offer, which is below an independent valuation of the business.

Grant Samuel values FPA at between $1.28 and $1.57 a share in its independent valuation report, above Haier's $1.20-a-share offer. Prior to Haier unveiling its offer last month the stock hadn't traded as high as $1.20 since September 2008.

The independent directors "unanimously recommended that shareholders do not accept Haier's takeover offer," chairman Keith Turner said in a statement.

The shares last traded at $1.205, marginally above Haier's offer price, suggesting some investors expected the Chinese manufacturer to sweeten its proposal for the 80 per cent it doesn't already own. Haier already has agreement from Allan Gray Australia to sell its 17.46 per cent holding into the offer.

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 per cent 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."