Fletcher Building chairman Ralph Waters defended the company's A$1 billion ($1.3b) purchase of Australia's Crane Group at today's annual meeting, after a shareholder described the takeover as "gung ho''.
Waters said that Fletcher Building had had its eye on Crane since 2001 and that it had taken over the company because the price price was finally right. Crane makes and distributes plastic pipelines systems, plumbing and electrical supplies and non-ferrous products.
Fletcher Building paid about NZ$1 billion for US based Formica in 2007, on the eve of a major economic downturn. The company has conceded that it paid too much for this business, which still struggles to find form.
One shareholder noted that Fletcher Building had not completed a due diligence book checking exercise on Crane, which the company bought in March.
"Considering that it is widely accepted that you paid too much for Formica, was this not a little gung ho,'' she asked.
Waters replied by saying due diligence was not carried out because the bid for Crane was hostile, and that the Crane board was therefore within its rights to deny Fletcher Building access to its books, which it did.
He said Crane had been on Fletcher Building's radar screen since he joined the company as its then chief executive in 2001. "There has not been one year in those 10 years that I have been involved in this company that the Crane numbers have not been re-run at our annual strategy conference for the board,'' he said.
"It was the first time in 10 years that the arithmetic was suitable to make an acquisition,'' he said. "Never once in those previous 10 years would we have bought at this price,'' he said.
Waters said the question on Formica was a fair one, and he reiterated company's view that it did pay too much for the business, particularly in light of the downturn that followed.
"Did we pay too much for Crane? Not based on the last 10 years history of that share price did we pay too much,'' he said.
Fletcher Building chief executive Jonathan Ling said Formica was improving but that it was still not performing as well as it should do.
"It is the third year in a row that it is improving but it is not at the sort of return levels that we would have wanted,'' he said.
Fletcher Building is targeting earnings before interest and tax (EBIT) of $100m for Formica.
"We are still on track to do that in 2012/13, and that is still the expectation,'' he told APNZ after the meeting.
Formica's EBIT was $57 million in the year to June 2011, just over double the previous year's.
For the current year, Ling said he expects Formica's EBIT to be half way between last year's performance and the $100 million target.
Fletcher Building's shares last traded at $6.21, down 19c, after the company said that it did not expect to see any material improvement in trading in any market -- apart from Asia -- in the first half of 2012.
Waters reiterated the company's forecast last month for a 10 percent decline in first-half profit to $166m, and no growth in full-year earnings, before one-time items, from last year's profit of $359m.
The company's revised forecasts assume no further deterioration in its key markets.
