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Crane stock surges on Fletcher takeover

Crane stock surges on Fletcher takeover as target urges shareholders to wait

Dec. 15 (BusinessDesk) – Shares of Crane Group Ltd., the Australian plumbing supply chain and plastic piping company, soared after Fletcher Building Ltd. announced an A$740 million takeover offer at a premium to expand across the Tasman.

Crane shares jumped 19% to an eight-month high A$9.16 on the ASX, after Fletcher offered one of its shares plus A$3.43 in cash for each share of the target company. Fletcher fell 2.6% to $7.65 on the NZX and dropped 3.2% to A$5.73 on the ASX.

Sydney-based Crane is coming off two hard years, having posted a 35% decline in earnings for 2010 as sales fell 12%. The company urged shareholders to take no action pending a formal response from its board, though analysts said Fletcher has made a “full” offer for the stock.

“The market has had a quick look at the acquisition, which looks like they (Fletcher) are paying a relatively full price, notwithstanding they could bring some value,” said Rob Mercer, an analyst at Forsyth Barr. “Crane should look at the deal they are getting as a good one. They have been an under-performing company for the last couple of years.”

Fletcher said its offer amounts to A$9.35 a share, based on the Dec. 14 price of its stock on the ASX of A$5.92. Based on broker estimates for Crane’s 2011 earnings, the proposal amounts to a price-earnings multiple of 19 times and an enterprise value-EBIT multiple of 11.8 times, Fletcher said in a statement.

Crane comprises three main business units. Its biggest is trade distribution, which includes 220 plumbing supplies outlets in Australia under the Tradelink and Northern’s brands and the recently acquired Hudson Building Supplies chain. In New Zealand, its Crane Distribution operates under the Mico, MasterTrade, Corys and equip safety brands.

Trade distribution had earnings before interest and tax of about A$42 million in the year ended June 30, with the bulk coming from Australia, with EBIT of A$41 million on sales of A$902 million. In New Zealand, it managed EBIT of just A$800,000 on sales of $301 million.

Its pipelines business, which includes iPlex plastic piping systems, has EBIT of A$31 million on sales of A$505 million. Its industrial products unit, which includes Austral Wright Metals in Australia and Mico Metals in New Zealand, had EBIT of $8.1 million on revenue of $299.8 million.

Crane has forecast an improvement in all three businesses’ sales and profit in 2011. It has retained UBS and law firm Blake Dawson as advisers.

“The Crane businesses are complementary to Fletcher Building’s operations in the building materials and trade distribution markets,” said chief executive Jonathan Ling. The deal “will enable the company to diversify its presence in Australia to include the plastic pipe and plumbing trade distribution markets.”

The pro forma gearing ratio of the enlarged group would climb to 33% from 26.8%, Fletcher said. Pro forma 2010 revenue amounted to A$7.2 billion.

Fletcher “has got plenty of funding – more than $1 billion and they are under-geared at the moment,” Mercer said. Still, the deal will take “quite a bit of time to push through,” including the regulatory approvals in New Zealand and Australia.

To kick off the deal, Fletcher has already acquired 13% of Crane from institutional investors at the offer price, lifting its existing holding to 14.9%.

Fletcher plans to operate Crane as a separate division though it expects to reap savings from a reduction in head office and administrative functions, it said.

The deal is subject to regulatory approvals and on reaching 90% of the target. No break fees are payable in the event the deal doesn’t proceed.

Australia currently accounts for 31% of Fletcher’s revenue compared to 50% from New Zealand. The acquisition will lift the company’s per-share earnings, based on pro forma 2010 figures, it said.


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