Archive | Securities – NZ

Shareholding deal changes landscape at Steel & Tube

Steel & Tube Holdings Ltd goes to its annual meeting next Thursday with Fletcher Building Ltd no longer bidding for a takeover, and an asset manager replaced by NZ Steel Ltd as a large shareholder.

NZ Steel is owned by BlueScope Steel Ltd, of Australia.

NZ Steel’s $45.8 million acquisition of the 15.3% of Steel & Tube controlled by Milford Asset Management Ltd, at $1.7465/share, means Milford private equity investment director John Johnston is no longer standing for election to the board.

Earlier story:
16 October 2018: Fletcher gets miffy over Steel & Tube time to get advice, pulls what was only ever a “non-binding & indicative offer”

Attribution: Company releases.

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PMG wholesale capital fund fully subscribed, childcare fund close

Property Managers Group’s $12 million wholesale capital fund has been fully subscribed a fortnight before closing date, and the group expects its $5.5 million wholesale direct childcare fund to be fully subscribed by closing as well.

Tauranga-based PMG opened both funds in early September, with 31 October closing dates.

PMG investment head & director Daniel Lem said yesterday a limited number of $100,000 parcels in the childcare fund remained available.

PMG launched its childcare fund after investors said they wanted to provide access to quality early childcare education for young New Zealanders from all backgrounds. The fund’s aim is to build a portfolio of new early childcare education properties.

The present capital-raising is for 2 new centres in Hamilton & Pukekohe.

Earlier story:
13 September 2018: Property Managers Group offers 2 wholesale opportunities, gets AA ratings for 2 retail funds

Attribution: Company release.

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Fletcher gets miffy over Steel & Tube time to get advice, pulls what was only ever a “non-binding & indicative offer”

Fletcher Building Ltd dropped its on-the-quiet attempt to buy fellow NZX-listed company Steel & Tube Holdings Ltd yesterday, 3 hours after Steel & Tube told the exchange a revised offer still undervalued it.

Remarkably, Fletcher blamed the Steel & Tube board’s lack of support to “progress the proposal in a timely manner”.

5 weeks after Fletcher’s initial confidential approach, the Steel & Tube board decided it needed expert advice on Friday’s revised offer that would take 3-4 weeks to confirm.

Fletcher said they’d had “ample time”.

Again, as it did with its initial offer, Fletcher focused on the short-term timeframe of Steel & Tube’s share price, ignoring the turnaround process Steel & Tube has begun after a $38 million annual loss.

Fletcher initially began talks confidentially with the Steel & Tube board, and also with major shareholders in the target company, on its 10 September proposal to make a non-binding indicative offer of $1.70/share for the whole of Steel & Tube.

12 days after Steel & Tube disclosed that offer & its rejection to the market, Fletcher came again with a $1.90/share price tag plus a 5c/share dividend, with imputation credits.

This time, Steel & Tube told the market:

  1. Its advisors’ (First NZ Capital Ltd) view on Steel & Tube’s intrinsic value was between $1.95-2.36/share, excluding the company’s share of synergies, and
  2. The permitted dividend doesn’t adequately compensate shareholders for the extended timeframe realistically required to seek regulatory approvals.

The Steel & Tube board said of the new offer:

“The revised offer of $1.90/share implies an enterprise value (EV) of $341 million and is only an 8.5x multiple of our long-term sustainable earnings, assessed as 2021 financial year ebit (earnings before interest & tax) of $40 million. Comparatively, excluding the company’s share of synergies, our advisors’ valuation range is an implied EV of $346-414 million.
“However, Steel & Tube advises that in light of the revised offer the board is commissioning an independent expert report which will take 3-4 weeks, and will further consult its legal & financial advisors about the implications of the revised offer. Fletcher Building has been advised of this.”

Steel & Tube chair Susan Paterson.

Steel & Tube chair Susan Paterson said: “The revised non-binding indicative offer from Fletchers does not prevent higher value approaches from other interested parties. The board will continue to evaluate strategies & actions that deliver the best value to shareholders and is continuing to focus on executing our turn-around strategy.”

In her letter to Fletcher chair Bruce Hassall & chief executive Ross Taylor, Ms Paterson said: “While we understand you may have indications of some support from a couple of our institutional shareholders, the board needs to consider the interests of all shareholders taken as a whole, and the execution risks inherent in the revised non-binding indicative offer.

“Chapman Tripp continues to advise that the proposed acquisition would face challenging issues for clearance under the Commerce Act, due to Fletcher’s vertical presence & significant size in several steel product markets.”

The sulk

Fletcher said in its withdrawal announcement it had pulled its offer “due to lack of support from Steel & Tube’s board to progress the proposal in a timely manner.

“Steel & Tube has announced that it does not support Fletcher Building’s revised proposal, and that it would need a further 3-4 weeks to confirm this view. Fletcher Building has been engaging with Steel & Tube on a proposal for 5 weeks now, which has provided ample time for the board to seek independent valuation advice.

“During that period, Fletcher Building received support for progressing its proposal from major Steel & Tube shareholders Milford Asset Management & Harbour Asset Management.”

Analysing share price movements with a glass eye

Fletcher said its revised proposal “provided a significant premium of more than 50% to Steel & Tube’s pre-announcement 5-day volume-weighted average price”.

Fletcher Building chief executive Ross Taylor.

Fletcher chief executive Ross Taylor said: “Despite offering what we believe was a very attractive offer to Steel & Tube shareholders, our engagement with the Steel & Tube board has been unsuccessful and, as a result, we have withdrawn the acquisition proposal.

“Based on expert advice, Fletcher Building remains confident the transaction would have received Commerce Commission clearance. Steel & Tube’s market share information released on 10 October doesn’t properly take into account the material impact of direct imported products in relevant markets.”

Steel & Tube Holdings Ltd’s share price rose 11c to $1.34 in the 4 days before it revealed Fletcher Building Ltd’s intention to take it over. On 3 October, the day of the announcement, the price rose another 22c, and 3c more the next day to reach $1.59 – a 36% gain in a week.

The price had fallen to $1.15 at the end of August, tumbling from $1.83 in May & $2.06 in January.

Steel & Tube’s share price dropped to $1.48 a week ago and has since been in a 3c band around that price.

Fletcher’s share price hit a short-term peak of $6.58 on 2 October, the day before Steel & Tube revealed the confidential offer. Since then, the Fletcher price has tumbled to $6.10.

Like Steel & Tube, the Fletcher share price has been hit over the last 2 years by revelations of incompetent management & board control.

On 2 February, 12 days before Fletcher announced an extra $486 million of losses by its Building + Interiors division, accompanied by chair Sir Ralph Norris’s decision to resign, its share price hit a 4-month high of $7.61. It bottomed on 4 April at $5.53 and made it back up to $7.13 on 30 July.

The Fletcher share price had been at $10.19 in November 2016. The company had become aware of deep problems within its vertical construction business over that summer, and the price had dropped to $8.73 by 17 March 2017, the Friday before now-departed chief executive Mark Adamson made the first revelation of the extent of Fletcher’s problems.

Link:
Steel & Tube investor updates

Earlier stories:
5 October 2018: The price was moving, the confidentiality remains, and still-weak Fletcher insinuates Steel & Tube takeover “compelling”
13 September 2018: Steel & Tube bookbuild scaled
30 August 2018: Steel & Tube completes books-clearing, future already brighter
22 August 2018: Updated: A loss, but flow of red ink stops at Fletcher Building
7 August 2018: Updated: Steel & Tube seeks $80.9 million from placement & rights issue, updates guidance
1 July 2018: Fletcher Building exits Sims recycling joint venture
22 June 2018: Australia the next big focus for Fletcher, offsite construction an innovation example
23 May 2018: Review puts Steel & Tube ebit loss at $38 million
14 February 2018: Another $486 million of losses for Fletcher Building, and Norris resigns

Attribution: Fletcher and Steel & Tube releases, websites, NZX.

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Goodman settles Mt Roskill acquisition

The Goodman Property Trust has settled its $93 million purchase of Foodstuffs (North Island) Ltd’s distribution centre in Mt Roskill.

The 13.1ha property at 58-60 Roma Rd has 36,977m² of warehouse & office space, plus yard & parking areas.

Goodman has acquired the distribution centre on a leaseback arrangement and will refurbish & reconfigure the facilities when Foodstuffs’ lease expires in 2021.

Site coverage of less than 30% & a light industrial zoning offer the longer-term opportunity through intensification of use or redevelopment that Goodman has specialised in.

Earlier story:
12 September 2018: Goodman buys Foodstuffs centre for future intensification

Attribution: Company release.

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Summerset just behind 2017 with retirement unit sales

Retirement village owner, developer & operator Summerset Group Holdings Ltd sold rights to occupy 148 units in the September quarter, 7 behind the previous year at this point.

The company recorded 82 new sales (97 in the September 2017 quarter) & 66 (58) resales.

Summerset achieved total sales of 682 units in 2017 (382 new, 300 resales) and would need 235 sales in the final quarter to match that.

Chief executive Julian Cook said the company was still on track to deliver 450 new units this year, the same as last year.

Attribution: Company release.

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The price was moving, the confidentiality remains, and still-weak Fletcher insinuates Steel & Tube takeover “compelling”

Steel & Tube Holdings Ltd’s share price rose 11c to $1.34 in the 4 days before it revealed Fletcher Building Ltd’s intention to take it over. On Wednesday, the day of the announcement, the price rose another 22c, and 3c more yesterday to reach $1.59 – a 36% gain in a week.

The price had fallen to $1.15 at the end of August, tumbling from $1.83 in May & $2.06 in January.

Both companies have been in serious trouble in the last 2 years, Fletcher Building in its construction division, and especially big-project vertical construction, Steel & Tube turning into a very poorly performing supplier, forecasting a heavy loss in May but clearing its books in August.

Fletcher Building priced its offer at $1.70, a cheeky undervaluation for an entity heading north under its own steam, although Fletcher chief executive Ross Taylor said that – somehow, by being bought out of an enterprise at the start of its journey on a stronger future – the offer was compelling and had the ability to deliver significant value to Steel & Tube shareholders.

That, to me, is arrant nonsense, which is not to say that a large number of Steel & Tube shareholders won’t take today’s money rather than wait for the company to grow on its own account.

Non-binding and Fletcher still wants confidentiality

Fletcher Building proposed acquiring all of Steel & Tube’s shares through a scheme of arrangement. The offer, which Fletcher delivered on 10 September, was non-binding, indicative & confidential. Steel & Tube responded publicly on Wednesday after seeking legal & commercial advice, saying it didn’t support the offer.

Steel & Tube chair Susan Paterson.

Steel & Tube chair Susan Paterson commented: “The fact that Fletchers has made this indicative offer speaks to our reputation & the strength of our business. Obviously Fletchers sees a lot of value in our business & its future potential as the benefits of our turn-around strategy start to become clear… as do we.”

She said $1.70 “significantly undervalues” Steel & Tube, then turned to practicalities if Fletcher pursued its approach: “The proposed acquisition would need clearance under the Commerce Act, which would take some time to work through due to Fletcher’s vertical presence & significant size in several steel product markets.”

She added: “While the market remains highly competitive, Steel & Tube continues to win new customers, sign large contracts, increase efficiencies & reduce costs.”

Fletcher focuses on short-term comparisons

Fletcher Building concentrated on the short-term comparisons, which showed 35-38% premiums over most recent trading.

Looking further back, Fletcher Building said: “A price of $1.70/share implies a transaction multiple of 12.3x Steel & Tube’s ebit (earnings before interest & tax) guidance for the 2019 financial year. Fletcher Building believes this implied transaction multiple represents compelling value for Steel & Tube shareholders given it is materially above the average trading EV/EBIT multiple over the last 5 years of 9.2x.”

Offer process will continue

Fletcher Building chief executive Ross Taylor.

Fletcher Building chief executive Ross Taylor, who took charge of the company last November, said Fletcher Building preferred to work constructively with Steel & Tube’s board to progress its proposal, and had been in discussions with Steel & Tube & a number of its major shareholders over the last 3 weeks.

“Through this process shareholders, who collectively own more than 20% of all Steel & Tube shares on issue, confirmed their position that the board of Steel & Tube should, in good faith, progress the development of the proposal with Fletcher Building, with a view to it being put to Steel & Tube shareholders.

“Given the strong shareholder support to date, Fletcher Building intends to continue discussions with Steel & Tube shareholders & board, with a view to reaching an acceptable outcome in the immediate future.”

He said the acquisition “is consistent with Fletcher Building’s 5-year strategy announced in June, and fits firmly within its focus on the New Zealand & Australian building products & distribution sectors.

“An acquisition of Steel & Tube is a unique opportunity to create the leading steel distribution business in the New Zealand market. We believe that there is a significant ability to leverage our business model & people across the combined business for the benefit of our customers, employees & shareholders.

“In particular, we believe customers would benefit from an improved service offering & distribution network, broader product range and investment in innovation. 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.”

“We believe this is a compelling proposal for Steel & Tube shareholders, representing a significant premium to recent share price trading and broker valuations. If successful, the proposed transaction has the ability to deliver significant value to Steel & Tube shareholders and materially de-risk the turnaround plan that Steel & Tube management are beginning to embark on,” says Mr Taylor.

The proposed transaction would require clearance from the Commerce Commission. Fletcher Building has undertaken a significant amount of work with its economic and legal advisers on combining Fletcher Steel and Steel & Tube.

Fletcher raises nationalism & ‘still competition’ flags

In an argument likely to be needed to convince the Commerce Commission, Mr Taylor said: “Fletcher Building believes that the New Zealand steel industry would remain highly competitive if it acquired Steel & Tube, with a number of well established competitors remaining, in addition to a growing number of offshore suppliers selling directly into the market.

“This work has given Fletcher Building confidence that the transaction would receive the necessary clearance from the Commerce Commission. Approval from the Overseas Investment Office will also be necessary.”

Mr Taylor said – without acknowledging the sharp lift in share price 4 days before Steel & Tube revealed the approach – “discussions with Steel & Tube in relation to the proposal are intended to be progressed confidentially until an agreement can be reached. Until that point, the proposal remains incomplete & is non-binding, and therefore may not result in a transaction occurring. The proposal is not a takeover notice for the purposes of the Takeovers Code. The company will update the market with any material developments as appropriate.”

Earlier Fletcher stories:
22 August 2018: Updated: A loss, but flow of red ink stops at Fletcher Building
1 July 2018: Fletcher Building exits Sims recycling joint venture
22 June 2018: Australia the next big focus for Fletcher, offsite construction an innovation example
14 February 2018: Another $486 million of losses for Fletcher Building, and Norris resigns
21 September 2017: A year on, Fletcher board still has ‘construction nous vacancy’ pencilled in
21 July 2017: Fletcher Building takes axe again to construction earnings, Adamson ousted
20 March 2017: Fletcher Building cuts earnings guidance by $110 million

Earlier Steel & Tube stories:
24 January 2018: Steel & Tube reaffirms guidance based on long list of new positives
13 September 2018: Steel & Tube bookbuild scaled
30 August 2018: Steel & Tube completes books-clearing, future already brighter
7 August 2018: Updated: Steel & Tube seeks $80.9 million from placement & rights issue, updates guidance
23 May 2018: Review puts Steel & Tube ebit loss at $38 million
21 August 2017: Steel & Tube performance dissatisfies new chair

Attribution: Fletcher and Steel & Tube releases.

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Summerset buys at Papamoa

Summerset Group Holdings Ltd has bought an 8ha site at Papamoa Beach for its first Tauranga retirement village. It expects to open the new village in 2020.

The property is 4km east of the Papamoa town centre & 11km from Tauranga’s central business district.

Summerset chief executive Julian Cook said today the area was underserved by villages offering a continuum of care for residents. He said the new village would have about 280 homes, including serviced apartments & 2- & 3-bedroom villas. It would also provide a care centre with resthome & hospital-level care, and a memory care centre proviing one-bedroom apartments for people with dementia.

Mr Cook said total construction investment would exceed $150 million and a construction crew of at least 250.

Summerset is on track to build 450 retirement units this year. It has 23 villages completed or in development & 9 greenfield sites.

Attribution: Company release.

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Auckland Airport issues $150 million of bonds

Auckland International Airport Ltd closed its new bond issue on Wednesday with $150 million allocated.

The offer to institutional & NZ retail investors was for $125 million plus up to $50 million of oversubscriptions. There was no public pool.

The interest rate was set at 3.51%/year, reflecting a 0.95% margin over the underlying swap rate. The 6-year fixed-rate bonds will be issued on 10 October.

The company has 5 existing bond issues for a total $675 million maturing between December 2019 & April 2023.

Attribution: Company release.

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Super Fund beats its benchmarks

The NZ Super Fund continued to perform above its benchmarks in the June 2018 financial year, finishing $4 billion up at $39 billion.

Chair Catherine Savage said both broad markets and the NZ Super Fund had performed well. Global equities rose in value and the NZ Super Fund beating its reference portfolio benchmark.

The fund returned 12.43% (after costs, before NZ tax), beating its passive reference portfolio market benchmark by 2.02% ($700 million). It exceeded the average return on treasury bills, its other benchmark, by 10.71% ($3.7 billion).

Ms Savage said the fund continued to take a long view, as it won’t start to experience sustained withdrawals until the 2050s.

The 2018 result took its returns since its inception in 2003 to 10.4%/year, and value added versus the reference portfolio to 1.49% – a total of $7.6 billion.

Chief executive Matt Whineray pointed to 3 reasons the fund exceeded the reference portfolio benchmark: strategic tilting, in which the fund’s exposure to different asset classes is adjusted over time; timber, primarily its 42% stake in Kaingaroa Timberlands; and an internally managed credit mandate.

However, looking ahead, he said the external environment appeared challenging: “Global growth is beginning to decelerate, inflation is starting to rise in some developed markets, and financial conditions are tightening with the withdrawal of central bank liquidity. While trade tensions have been escalating, the contagion into financial markets has been limited to date.

“While the fund remains heavily weighted towards growth assets such as shares, with many markets at or above fair value, we have lowered the amount of active risk being taken. This is a measure of how different the fund’s actual portfolio is from the passive reference portfolio – they have got closer during the year.

“We are also maintaining higher than normal levels of liquidity in the portfolio – assets that can be sold easily to meet our obligations or to fund new investments. This will ensure the fund can withstand any future market stress and take advantage of new investment opportunities as they arise. We remain committed to our long-term investment strategies and will continue to take a highly disciplined approach to active investment.”

Government support resumes

The new Government resumed contributions to the fund in December 2017, after an 8-year suspension, contributing $500 million over the 2018 financial year.

The Government monthly contributions increased to $89 million/month from July 2018 and are projected to increase to the level specified in the fund’s governing legislation by 2022. Since inception in 2003, the Government has contributed $15.4 billion and the fund has paid $6.4 billion in NZ tax.

Links:
Fund performance figures as at 30 June 2018
June 2018 performance report

Attribution: Fund release.

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Infratil considers $250 million of bond offers

Infratil Ltd is considering making a new offer of unsecured unsubordinated bonds in 2 separate series in December, the first a 6-year bond and the second a 10-year bond.

Infratil treasurer Fiona Cameron said on Monday the company expected to set the interest rate on the 10-year (2028) bonds for 5 years, then reset the rate in 2023.

The company will seek an aggregate $125 million plus the same sum in oversubscriptions – total $250 million.

Infratil has $111 million of bonds maturing on 15 November, and NZ-resident holders of those bonds will be able to exchange maturing bonds for new ones, subject to availability.

The shorter of the new bonds will mature on 15 December 2024 and the second on 15 December 2028.

Infratil expects to release full details of the offer, and to open it, next week.

Attribution: Company release.

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