By Gareth Vaughan
After having a couple of months to take a look under the hood of his company's NZ$1.2 billion Australian acquisition Crane Group, Fletcher Building CEO Jonathan Ling says he still likes what he sees.
"Because it was a hostile (takeover) we didn't do any due diligence and now that we've owned it for a couple of months there have been no surprises," Ling told interest.co.nz in a Double Shot interview.
Building materials maker and distributor Fletcher announced on December 15 last year it had acquired a 14.9% Crane stake and offered to buy the rest. Then, at the end of January it improved the offer securing the support of Crane's board. Fletcher went passed 50% of Crane's shares on March 10, and completed the acquisition and delisted Crane from the Australian Stock Exchange on May 6. See a presentation on the offer here.
Ling said Crane had two key attractions to Fletcher, the biggest company on the NZX by value with a market capitalisation - as of yesterday's close - of about NZ$5.8 billion.
"The first was in plastic pipes. We are the number one in concrete pipes both in Australia and New Zealand. Crane, or Iplex Pipelines, is the number one in Australia and New Zealand and that was the crown jewel that we were really after," Ling said.
"The second area was Tradelink which is a trade distribution chain with 240 odd stores in Australia. It is trade to the plumbing industry but its model is very similar to (Fletcher's) PlaceMakers. What it will do is give us a channel to market in Australia where we'll be able to draw through not only the Crane products, but also (Fletcher's) Stramit (cladding and roofing sheets) and Laminex (laminates and panels) and Tasman (both insulation and sinkware), Oliveri sinks and Fletcher Insulation," said Ling.
"Those sorts of products we'll be able to draw through the channel and it gives us a great opportunity for synergies and increasing our market presence in Australia."
'Comfortable with price paid'
Fletcher's acquisition ultimately valued Crane at A$10.07 per share. Adding net debt of A$160 million, the deal gave Crane an enterprise value of NZ$1.2 billion. Ling, whose first big buy as Fletcher CEO was the NZ$1 billion Formica buy in 2007 on the eve of the global financial crisis, which he came under criticism for as Fletcher had to write-down its carrying value, said he was comfortable Fletcher hadn't over paid for Crane.
"You've got to remember that this is the bottom of the cycle, Crane is a stock that was trading at just over A$18 just over 18 months ago, and the net price we paid was about A$10 (a share)," said Ling. "So it's roughly half what it was at its peak, and its earnings aren't half what they were if you look at it through the full cycle. So I'm feeling good about that acquisition from a value point of view."
Furthermore, there were "quite a lot" of synergy, or cost saving, opportunities with Crane. Fletcher has already shut down Crane's Sydney head quarters, removing the duplication of having two public company head offices. Then there's the cost savings from selling Fletcher products through Crane's distribution network in Australia and from selling Crane products through Fletcher's distribution network. In New Zealand Crane has a network of more than 100 branches carrying the MasterTrade, Mico and Corys names.
"There are going to be some quite good cost synergies in the Crane distribution business in New Zealand where obviously we've got duplication with the PlaceMakers distribution footprint but also the Humes (Pipeline Systems) footprint," Ling said. "So there'll be some good opportunities there."
This didn't necessarily mean there'd be many branch closures.
"We're looking at all sorts of things like store within a store. It's more about sharing the fixed cost base like branches and forklifts and warehouses than it is actually closing branches. We like the presence that the Crane distribution has in New Zealand. It's actually about how do we deliver that product offering and service to our customers in a much more cost effective way," Ling said.
Fletcher's bidders statement also noted opportunities to leverage the scale of a bigger combined group in product and services procurement, plus the amalgamation of logistics and distribution arrangements.
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