Fletcher to raise $750m from rights issue and sell Formica, Roof Tile Group

Fletcher Building chief executive Ross Taylor says it's appropriate to strengthen the balance sheet.

Fletcher Building says it will raise $750 million in fresh equity through a fully underwritten one-for-4.46 rights issue priced at $4.80 a share and is planning to sell its Formica and Roof Tile Group businesses.

The company says the proceeds will strengthen its balance sheet and “better enable it to execute its immediate and longer-term strategic objectives.”

The issue price compares with Monday’s closing price at $6.27, representing a 23.4% discount.

Fund manager Nikko Asset Management has previously said Fletcher needed to either sell assets or raise equity to strengthen its balance sheet following escalating losses from its Building + Interiors unit, which builds high-rise developments.

Nikko had earmarked Formica as a likely asset for sale.

The company has also announced it will focus its activities on New Zealand and Australia and will start divestment processes for Formica and Roof Tile Group.

Fletcher says it will conduct book-builds to sell any shortfall and that the proceeds will be used to repay existing debt.

Fletcher says it has obtained commitments from the majority of its lenders to a permanent solution of its breach under its syndicated facility agreement and has established a new standby facility of $500m with ANZ, MUFG Bank and Westpac.

Discussions with its US private placement (USPP) lenders are continuing and “Fletcher Building’s objective and expectation is that it will achieve a mutually acceptable outcome.”

At the end of March, Fletcher said it had gained an extension to waivers from its banks and USPP lenders to the end of May.

Although it doesn’t expect to need the new standby facility, it and the rights issue proceeds are sufficient to redeem all its USPP notes and to cover any associated costs.

Fletcher says there is no change to its estimated operating loss for B+I of $660m in the year ending June, or for its forecast of earnings before interest and tax (ebit) of $680-720m excluding the B+I loss.

The company also says that Wesfarmers has confirmed it doesn't own any Fletcher shares.

An unsubstantiated report in the Sydney Morning Herald on Friday propelled Fletcher shares from $5.84 on Thursday to $6.34 at Friday's close.

More to come


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I'll bet their current shareholders are just loving this... not.

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Well well well, that Wesfarmer buy-up rumour certainly seems very, very well timed now as we see a $4.80 rights issue and heavy volume trading on Friday last week.

Oh FMA, FMA, Where For Art thou FMA!?

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You do realise that the govt watchdogs are just all about expensive bums on seats. A hundred companies could go under, and all you would get from them would be a muted sorry, and the next day the govt would reform them with a new name, and it would be back to business as usual. They're really just a dept put in place to fool the public into thinking that there's some sort of watchdog out there, keeping an eye out for their best interests. Anyone that really believes that, is a deluded fool.

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So very true Ivan.

Glaring example is the collapse of the finance company sector with the billions of dollars of losses for depositors - all the freaking government watchdogs and not one of them did anything to pre-empt the collapse.

They all say that was then and this is now. CBL collapse shows that it’s all expensive bums on seat indeed at the watchdogs.

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At the end of the finance company debacle the boss of the then watchdog the Securities Commission "Plane Jane" Diplock as she was known, due to the amount of overseas travel she used to partake in, was asked why the department had done nothing. Her reply was, that the department had not been funded sufficiently enough to do it's job. That led to the question, what was the point of even having the department then?

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absolutely true.
Another word for it is market manipulation.
How on earth do they expect us to wisely invest when we are only offered fools and horses to invest into.
This whole performance is disgraceful.

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There has to be an element of caveat emptor. The people who purchased shares on Friday went in knowing they were investing in a moderately distressed company, on the basis of an unsubstantiated rumour. They made a judgement on the risk/reward of the trade and chose to take a punt.

Different story if someone had actually leaked from Wesfarmers, and it had turned out to be true.

As for the cap raising - everyone knew it had to come at some point.

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I would have thought that this would also be a job for an investigative reporter and a leading business newspaper to get to the bottom of as well. Do we actually have any of those? Just saying..........

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As the saying goes, good things take time. I have asked questions of NZX and the FMA and I can assure you I'll report the answers.

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Good on you Ms Ruth.

The FMA and NZX like to do their work in a cloak of secrecy, justified by the need to do proper investigations etc.

What a load of absolute nonsense as they have showed themselves to be singularly ineffectual at protecting investors and the market from market manipulations and dodgy IPOs like Intueri, Wynyard and CBL.

Seems like one too many inside the FMA and NZX see their lives after FMA and NZX in the employment of the very same companies and lawyers they are supposed to bring to heel.

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Very very convenient indeed!

But let's speculate a little bit as to the possible motive of the 'leaker' - primary intention obviously being to ramp the share price up.

Possibilities:

1. Underwriter (s) : Higher share price is certainly very helpful to get sub-underwriters and reduce risk of shortfall;

2. Existing shareholder(s) : Nice to be able to get out at a higher price and reset at lower price during and post placements/capital raising;

3. Trader(s) : Go long and sell out on the rumours.

Doubt very much that Fletcher Building itself is involved in any way whatsoever but you never know - this is a company whose Chairman Kerry Hoggard at the time was done for insider trading.

Over to the FMA and NZX to investigate but don't hold your breath.

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How do you build a $4 billion company in NZ? You start with a $10 billion company and hire lots of incompetent egoistic 'growth at all cost' overpaid senior executives from overseas while getting rid of local talents. That's Fletcher Building and that's The Warehouse too!

At $4.80, Fletcher Building's share price is back to where it was in July 2004! 14 years down the drain while NZ enjoyed two fantastic building & construction booms over that time. Takes some kind of genius to achieve such a feat!

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This whole performance with Fletcher needs some serious and urgent looking at.
At best you could call it market manipulation and at worst criminal behavour.
Whe was it engineered by.....Nam and shame.

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Fonterra.......maybe not the total value destruction in terms of shareprice, but opportunity cost has been massive.

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Painful observing how NZ companies keep getting smaller over the decades - even while their competitors overseas get bigger and stronger. Real tragedy for NZ.

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Well, when you hire a CEO and give him a pay packet based on what was really sales growth, I guess this is what happens.

Strange decision by the Board given the building game is a high turn over with low margins.......... Still the blame game started by sacking the CEO.

Clearly no idea at any level in this company.

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Look on the bright side folks. Your Fletcher Building problems mean windfall gains for Sky City and the NZ government who get a few projects built below cost!

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And future projects if you can find anyone to bid will probably have high premiums built in.

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And therein lies a very serious problem for N.Z. Inc going forward.
The board have a lot to answer for and really I think its time for a serious refresh. For example Tony Carter has done well for AIR shareholders but what value has he added with all his time on the FBU board ?

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I tend to differ from above opinions. Seriously I believe the lessons learnt from this will see Fletcher Challenge not only survive but gain in strength and stature.
The only problem I have is, When to buy? Will they go lower?

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John showing your age. Fletcher Challenge is long gone. Will they learn - probably not.

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I'm old yes and I know that what does not kill you will make you stronger, meaner, tougher.

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I agree - keeping an open mind here could be beneficial.....

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I suspect they will go lower after the discounted rights issue goes through. Not that the company will care. They only want their money.

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MMM I think it is the banks that want the money? ;)

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Yet another example of complete ineptitude from Norris and the board. Norris should carry a mandatory health warning for all shareholders to beware any company he is involved in.

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Perhaps what they need is a real business leader from the University of Life, who has started businesses from scratch and grew them into very large businesses.

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Do you think there will be any of those in the old boys network?

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The Old Boys network certainly protects their own - the same old tired faces around board tables, drawing hundred thousand dollars fees and destroying shareholders' wealth - Fletcher, Warehouse, CBL, Fonterra, NZX, PGC, Tegel etc by the billions of dollars - the list goes on and on.

Bad enough but when you examine closely what happened with the finance companies, that's when the full impact of how immoral, unethical and plain crooked the old boys' network can be.

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