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Fletcher Building settles with Cerberus over Formica

Fletcher Building settles with Cerberus over Formica milestone payments

Dec. 20 (BusinessDesk) – Fletcher Building Ltd. reached an out-of-court settlement with Cerberus Capital Management LP over $50 million of milestone payments stemming from the 2007 purchase of the Formica laminated board business.

Fletcher paid US$700 million upfront for the Cincinnati-based Formica from buyout firms Cerberus and Oaktree Capital Management. The additional US$50 million was contingent on Formica achieving specific performance milestones.

The Auckland-based construction and building products group had anticipated earnings growth of about 25% from Formica in its first year of ownership though within 12 months it was reporting that the American company’s results were disappointing, with tougher trading conditions in the U.S.

Under the settlement announced today, neither Fletcher nor Cerberus admits any liability. Fletcher paid US$28 million of the milestone payments, though US$18 million of that was held in escrow and the remaining US$22 million wasn’t paid, because of a dispute over achievement of certain cost-saving initiatives.

Fletcher will get back US$12 million of the US$18 million, while Cerberus will receive US$6 million.

No further payments will be made, Fletcher said.

Shares of Fletcher rose 0.7% to $7.78 on the NZX today. The shares traded around $12.35 around the date of the transaction in early July 2007 and shed about half their value over the following 12 months.


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