Australian fund manager accumulates a 5.1% Fletcher Building stake

(Photo: Jerry Yelich-O'Connor)

RELATED AUDIO: Jenny Ruth on why the Wesfarmers story may not be true (Apr 13)

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Hard on speculation that Wesfarmers has been buying Fletcher Building shares, a Sydney-based fund manager, Ellerston Capital, has told ASX that it has accumulated a 5.1% stake.

The notice shows Ellerston started buying Fletcher shares on December 4 last year through a number of nominees companies and that a $9.4 million purchase of 1.2m shares on Friday took it over the 5% threshold beyond which shareholders must disclose their presence.

Ellerston now owns nearly 35.8m shares, having spent nearly $230.5m or an average price of about $6.44 per share.

The shares closed at $A6.02 on the ASX on Friday, up 47c, or 8.5%, on the previous day after the Sydney Morning Herald reported Wesfarmers had built a 3-4% stake, which cited “some sources close to” Wesfarmers.

Fletcher shares bottomed on the ASX earlier this month at $A5.44, down 40% from early 2017 as the losses stemming from the company’s Building + Interiors unit from its high-rise construction projects mounted.

The known and expected B+I losses now total about $NZ700m.

Ellerston’s website says it has more than $5 billion in funds under management in a number of separately managed accounts, wholesale funds and retail offerings for a range of financial advisers, institutions and individual investors.

It specialises in “equity and alternative strategies” and “exploiting inefficiencies by identifying stocks that are temporarily misunderstood and fundamentally mispriced.”

The substantial shareholder notice shows the shares are owned by 150 different entities in countries including Australia, the US, Hong Kong, the Caymans and Jersey.


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12 Comments & Questions

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Will FMA investigate what appears to be a planted story about Wesfarmers?

Somebody obviously made a lot of money 'leaking' what is an untrue planted story.

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These stories are quite common across the Ditch, unfortunately, and are usually proven untrue, for whatever reason. However, we still don't know if Wesfarmers has also joined the fray with Ellerston, which could put some cornerstone shareholders in place, propping the price at what they see if a bargain. Personally, I think they're too early and there is more shadows to have light shown on them before FBU can move on...

What I am interested in is that Ellerston has taken a stake in FBU worth 5% of their entire capital. That is quite a large bet, especially for a distressed asset, and tells me that something else is cooking behind the scenes which retailers can't see (and are the last to end up knowing...)

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Market rules state very clearly that any stake in a listed company below 5% has no requirement for filing or discloser. Therefore, market commentary that "sources close to the company say Wesfarmers has bought a 3-4% stake in FBU" that led to a 10% move in the stock price on Friday raises 4 questions.
1. Was this unprofessional (but not illegal) conduct by an industry participant to unnecessarily report the activity of a client? Isn't the "3-4%" reference alone tardy and lacking accuracy? 1% of FBU is worth approx. $50 million - not an insignificant amount of activity for the NZ market.
2. With or without actual confirmation, by referencing Wesfarmers to any buying, was there an attempt to stimulate a greater market reaction and therefore create a case of market manipulation?
3. If Wesfarmers the company formally deny purchasing any shares in FBU does the FMA investigate a case of the spreading of a false rumour which caused a substantial stock price reaction?
4. If Wesfarmers do confirm the purchase of shares of FBU does the FMA investigate any possible breaches of Insider Trading laws?

Bottom line, it's behaviour resembling the antics of a small emerging market lacking suitable regulation. Such activity is typically undertaken because of a belief benefits outweigh any risk of investigation and/or penalty. Are these the standards and market conduct the FMA and NZX wish to tolerate in NZ?

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FBU also listed in Oz and the original report came out in the Sydney Morning Herald.

I’d be looking at any strangely prescient derivatives action over there.

Certainly was a nice rise at the end of last week if you had some out of the money call options or CFDs.

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Agree on all points. There are clear grounds for a Regulatory investigation. To what extent ASIC or the FMA choose to undertake the exercise will be interesting. One hopes there is at least some condoning of such behaviour by senior industry professionals. There is no long-term winner by the antics seen last Friday.

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FMA will still be deciding whether or not to act this time next year. moves at the pace of a very slow tortise.

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Yup - NZX and FMA only go for slam dunk cases or where they are not faced with a few heavy duty QCs on the other side.

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Not sure who is the long-term winner if that is indeed the case.

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There will be some happy QCs.....

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Yup.

NZ is the big loser and we see it with:

- Sham IPOs like Feltex, CBL, Wynyard, Veritas & Intueri,

- Unethical, badly structured and/or scam capital raisings like Credit Sails and finance company bonds, and of course

- The unique backdoor listings in NZ where promoters take just about all the upside after highly questionable PR and good news from the companies to get the share prices up so the promoters and directors can sell out.

Meanwhile, the NZX and FMA sit there like possums staring at and mesmerized by the headlights.

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A smart company would have a look at it, see where the mistakes have been made, then do the sums to see just how much money this company could make, if it was run properly. End result wow. We could buy this, sack the incompetents that have been running it, and then make a fortune.

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What a criminal load of bollicks.
You and I tried that and the deal would be cancelled and we would be in front of authority.
Where is our ComCom....on its ars as usual.

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