Fletcher Building is going global with the $1 billion acquisition of United States-based Formica Corporation, which makes surfacing materials used in sinks and bench tops.
Fletcher said the deal would cost it US$700 million (NZ$960 million) with additional payments of up to US$50 million if Formica achieves earnings targets. Fletcher's shares have been placed in trading halt today with the company aiming to sell 26 million new shares to raise $300 million to help fund the deal. The balance of the acquisition cost will be funded through bank loans. Fletcher said the acquisition would boost its earnings in the year to June 2008.
"The acquisition provides a logical extension to Fletcher Building's existing decorative surface laminates business," chief executive Jonathan Ling said. "Following strong growth in the company's earnings throughout Australasia in recent years, Formica provides Fletcher Building with the opportunity to establish a truly global laminates platform and significantly increase geographic diversity of our earnings exposure."
Fletcher shares closed down 20 cents at $12.65 yesterday. Fletcher, whose existing businesses include PlaceMakers, Fletcher Construction, Golden Bay Cement, Gerard Roofs and Laminex, already trades and owns the Formica brand in Australasia.
It is buying the Cincinnati-based Formica off private equity funds Cerberus Capital Management and Oaktree Capital Management. The deal is expected to settle on July 2. Key members of Formica's management team have agreed to stay on. In the 12 months to December, Formica posted revenue of US$737 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of US$75 million. Fletcher expects Formica's EBITDA for the year to June 2008 to be US$94 million before cost savings once the business is combined with Fletcher.
The Auckland-based company expects cost savings of about $13 million in 2008 and $24 million in 2009 through combined procurement, production rationalisation and reduced corporate costs.
Formica is Fletcher's first major acquisition under Mr Ling who replaced Ralph Waters last September. During Mr Waters' five years at Fletcher's helm the company made three acquisitions in Australia worth a combined $1.6 billion. It now makes about 35 per cent of its earnings in Australia. Formica is the market leader in its field in Thailand, Taiwan, Hong Kong, China, Britain, Spain and Scandinavia. It makes 47 per cent of revenue in North America, 39 per cent in Europe and 14 per cent in Asia. Formica has manufacturing plants in Thailand, China, Taiwan, the US, Britain, Finland, Germany and Spain. "Formica's Asian business provides a strong platform to distribute Laminex products, especially low pressure laminate, into the Asian growth markets," Mr Ling said.
