3 Oct 2018

Fletcher Building makes bid to buy Steel and Tube

4:37 pm on 3 October 2018

Fletcher Building is looking to buy building products company Steel and Tube, but there has been a quick push back from the target company.

Construction site for the SkyCity Convention Centre

Fletcher Building is trying to construct a deal to buy Steel and Tube. Photo: RNZ / Claire Eastham-Farrelly

The country's biggest construction company has made a non-binding indicative offer to Steel and Tube of $1.70 a share, which values Steel and Tube at about $280 million.

Steel and Tube chief executive Mark Malpass said it became aware that its big shareholders were being approached by Fletcher Building to see if they were willing to sell.

He said the offer appeared opportunistic and was unwelcome.

"The offer is well below what the board regards as the intrinsic value of the company."

Mr Malpass said Steel and Tube is recovering after a tough period, in which it posted big losses because of the broader construction sector problems. The company was forced to sell assets, restructure its business, and raise $81m to bolster its finances.

"We've got a clear focus on growth and improving our financial performance ... Fletchers obviously sees a lot of value in our business and a lot of potential," Mr Malpass said.

Steel and Tube's share price rocketed after the news, gaining as much as 21 percent to a near four month high of $1.61 a share before it eased back slightly.

While Fletcher Building wanted to buy all the shares in Steel & Tube, it said it preferred to negotiate a scheme of arrangement, rather than make a formal takeover offer.

Fletcher already has considerable assets in the steel industry, but was confident it would be able to gain Commerce Commission approval to buy Steel & Tube, given the legal and economic advice it had already received.

Fletcher chief executive Ross Taylor said efforts to secure a scheme of arrangement was supported by some of Steel & Tube's major shareholders, with a collective stake of more than 20 percent.

He said the acquisition was consistent with the company's five-year strategy announced in June.

"We believe that there is a significant ability to leverage our business model and people across the combined business for the benefit of our customers, employees and shareholders," said Mr Taylor.

"We consider there to be potential value creation over time as benefits of the combined operation are realised, providing us with the confidence to present an attractive proposal to Steel & Tube."

The company has made headlines in the past year with high profile losses of close to $1 billion on several major construction projects which like Steel and Tube have prompted job losses, asset sales, writedowns, and a $750m cash injection.

Steel and Tube said it thought any offer would need to go before the competition watchdog, the Commerce Commission, which could take some time to decide.

Fletcher said the offer would need to go before the Commerce Commission, as well as the Overseas Investment Office, which could take some time to decide.