Rumours of a takeover battle for troubled New Zealand contractor Fletcher have caused its share price to surge.
New Zealand’s largest construction group, Fletcher is vulnerable to a takeover after its share price fell from a high of NZ$11 at the beginning of 2017 to less than NZ$6 at the beginning of April.
The first possible predator was Australian conglomerate Wesfarmers, which was reported to have built up a 4% stake in the company. The second was Australian fund manager Ellerston Capital, which said today that it had built up a 5.1% stake.
Morgan Stanley said today that Wesfarmers had the firepower to mount a takeover offer and that "Fletcher fit its existing acquisition framework". Â
Shares in Fletcher surged 13% on Friday, after The Sydney Morning Herald reported the Wesfarmers position. Wesfarmers refused to comment on the speculation.
Fletcher Construction shocked the markets in February when it revealed a US$490m loss and shortly afterwards announced that it would stop bidding for construction projects.
The company, which has a turnover of about $3.7bn and employs 20,000 people, said after a meeting with its banks that it would restrict its building arm to completing projects that are already under way. Other consequences of the loss included the cancellation of dividend payments and the resignation of Sir Ralph Norris, the chairman of the company.
According to Reuters, Wesfarmers may be interested in acquiring Fletcher as its loss-making projects draw to a close, and as the New Zealand construction boom looks set to continue, particularly in the residential market.
Brian Gaynor, head of Auckland-based Milford Asset Management, which owns Fletcher shares, told Reuters: "Fletcher has a lot of good businesses and it’s just one area that’s going particularly badly. The stock price has come down too far and there’s some value on a long-term basis."
Ellerston, which is backed by billionaire James Packer, began buying shares in the company in December. It made large purchases late in January, in February and in April and has published an investor newsletter that listed Fletcher as a "turnaround story".
Image: One of Fletcher’s projects is the US$560m Rebuild Christchurch residential scheme (Rebuild Christchurch)
Further reading:
