Keen buyer for Fletcher's steel

By PAULA OLIVER

The country's two largest steel companies could soon become one, after Steel & Tube yesterday indicated that it was interested in buying the steel assets of newly independent Fletcher Building.

The Lower Hutt-based company lodged an application with the Commerce Commission to buy up to 100 per cent of Fletcher Building's steel operations.

The move comes shortly before Building executives are expected to reveal the results of a major strategic review of the standalone company's operations. They have made no secret of the fact that the review could see some non-performing, or non-core, assets sold.

Steel & Tube chief executive Nick Calavrias said that was what had propelled the application to buy the steel assets.

"It is our belief that the steel operations of Fletcher Building may fall into this category," he said of the review's guidelines. The application had been made to keep Steel & Tube's options open.

Steel & Tube is 50.1 per cent owned by OneSteel and listed on the NZSE. It does not manufacture raw materials itself, instead buying them from facilities such as the BHP-owned Glenbrook steel mill. It then cuts or makes products such as reinforcing steel and roofing products for the building and construction industry.

The two steel companies, which are estimated to have a combined market share of as much as 85 per cent, have a long history of mooted takeovers.

Fletcher Building has applied for approval to buy Steel & Tube three times in the past two years, but never completed the transaction.

Its last request for approval came just a month ago, but analysts say it never looked like a viable option.

"When Fletcher Building applied to buy Steel & Tube a month ago, people felt it wasn't so much them wanting to buy Steel & Tube as them wanting to sell their steel division to Steel & Tube," said Arthur Lim of JP Morgan.

The rationale was that if that received clearance, then the reverse transaction should also. The commission gave that option clearance.

Rumours in the market point to Fletcher Building heads being keen to offload the steel assets, including a steel recycling plant in Otahuhu.

Despite the fact that the two have a strong market share, analysts say competition from smaller businesses importing materials is growing. The barriers to competition are seen as low.