Fletcher Building has been a sharemarket darling for the past five years but investors might have missed out altogether if Fletcher Challenge's board had taken private equity advances more seriously. In September 2000, when the Fletcher Challenge group was being broken up, a private equity firm came knocking on the door expressing interest in Fletcher's building business.
Though the offer was not made public, BusinessDay understands it came from Credit Suisse First Boston Asian Merchant Partners and was worth about $2.82 a share. CSFB Asian Merchant Partners is the firm that floated ill-fated carpet maker Feltex in 2004.
Unimpressed with the private equity advances, Fletcher Challenge's board jilted CSFB. Fletcher Building, with businesses which include PlaceMakers, Fletcher Construction, Golden Bay Cement and Gerard Roofs, listed on the sharemarket as a standalone company in March 2001.
Its shares, which started at $2.23, hit a record high of $13.42 in May after Fletcher Building raised $328 million in a placement of new shares to help fund the $1 billion acquisition of benchtop group Formica. Though the shares have slipped back, they are well above $12.
Roderick Deane, formerly Fletcher Challenge chairman and now chairman of Fletcher Building, recalls that the offer came when the breakup of Fletcher Challenge was well under way. It would have been a "huge hassle" to address the CSFB offer. Furthermore, Dr Deane describes the offer as indicative with numerous conditions attached, giving a range of prices rather than a specific one. "It just seemed to us that it didn't have a large enough premium in it to warrant pursuing and it was too indefinite," Dr Deane says. "If they'd actually made a firm, unconditional offer then of course the obligation to disclose would have been much more immediate." The offer was subject to a confidentiality agreement and Dr Deane says the other party did not want it made public.
CSFB spokeswoman Elizabeth Rudall declined to comment.
Fletcher Challenge was broken up in New Zealand's biggest corporate restructure in 2000-01. Fletcher Paper was sold to Norske Skog for $5 billion. Shell and Apache Corporation bought Fletcher Energy for about $4.8 billion. Fletcher Forests was listed. Today, having sold all its forests and its wood processing assets bar a sawmill and mouldings plant in Taupo, it is known as Tenon.
Dr Deane says Fletcher Building was always regarded as the potential crown jewel but it had not been "polished up" for some time. After analysis the board decided what its strategies should be and pooled the lessons individual directors had learned. Chief executive Ralph Waters joined in mid-2001. Since then Fletcher's share price has surged as it has cut costs, made the most of strong construction and infrastructure demand, and expanded in Australia by spending $1.6 billion on acquisitions. Mr Waters handed the reins to Jonathan Ling last September.
With Formica, Fletcher is now the world's biggest maker of laminate boards for use in kitchens, bathrooms, shops, hospitals and schools. After starting as a company dependent on the domestic residential building market, it is now on track to make more than half its revenue overseas. "When we listed Fletcher Building it was No17 on the stock market. Today it's No2 in market cap. I think that's the vindication."
