Archive | Fletcher Challenge

Propbd on Q T2Feb16 – DJ’s settles, third Melbourne Ryman, Fletcher sells Rocla assets, Warehouse opens at Atrium, ethics consultation

David Jones settles Kirkcaldie’s deal
Ryman buys third Melbourne retirement village site
Fletcher nets $85 million from Rocla divestment
Warehouse moves to Atrium on Elliott
Ethics standards for property sector out to global consultation

David Jones settles Kirkcaldie’s deal

David Jones Pty Ltd has settled its agreement to take assignment of Kirkcaldie & Stains Ltd’s main store lease on Lambton Quay in Wellington and to pay $A400,000 cash for the name ‘Kirkcaldie & Stains’.

Kirkcaldie & Stains is still awaiting High Court approval of a scheme of arrangement to return $19.4 million of capital to its shareholders. The company is seeking court approval to cancel 4 in 5 of its shares and return $2.3602/share cancelled. It also wants to wind up the employee share scheme.

The David Jones store would be the first for the brand outside Australia, but brand owner Woolworths Holdings Ltd’s 36th store in New Zealand. South African retailer Woolworths Holdings acquired David Jones in August 2014 for $A2.1 billion. Its other brands here are Country Road, Witchery, Trenery & Mimco.

Ryman buys third Melbourne retirement village site

Ryman Healthcare Ltd said yesterday it had bought its third retirement village site in Melbourne’s eastern suburbs.

The New Zealand company will redevelop the 2.5ha site in Burwood East into a $200 million ($A183 million) retirement village for over 400 residents, with independent living apartments & an aged-care centre which will include specialist dementia care. The new village will also have a swimming pool, café, gym, beauty salon, library, movie theatre & bowling green.

Ryman has entered into an unconditional contract to buy the site, which is part of a Frasers Property Australia redevelopment of the 20.5ha former Burwood East brickworks.

Frasers Property Australia has plans for a $A500 million-plus redevelopment of the site, which will include 900 homes and a large retail centre.

Ryman opened its first Australian village at Wheeler’s Hill in Melbourne’s eastern suburbs in 2014 and is developing a second village at Brandon Park. Managing director Simon Challies said Ryman’s in-house team would design the new Burwood East village, and the company intended to apply for planning permission in late 2016.

Mr Challies said the Burwood East purchase put Ryman on track to fulfil its ambition of opening 5 villages in Melbourne by 2020.

Fletcher nets $85 million from Rocla divestment

Fletcher Building Ltd said on Friday it had completed the $A150 million divestment of Rocla Quarry Products assets to Hanson Construction Materials Pty Ltd, following clearance from the Australian Competition & Consumer Commission and Foreign Investment Review Board.

In addition, Fletcher said it had sold Rocla assets excluded from this transaction to other parties for an extra $A44 million.

Fletcher said it would make an $A77 million ($NZ85 million) after-tax profit from the Rocla sales, less transaction costs & adjustments to asset carrying values.

This transaction doesn’t affect the ownership of Fletcher Building’s Rocla Pipes & Concrete Products or GBCWinstone businesses, which remained core elements of its portfolio.

Warehouse moves to Atrium on Elliott

The Warehouse Group Ltd has secured a long lease in the Atrium on Elliott for an 1800m² store to replace its second-floor premises in the Downtown Shopping Centre, which Precinct Properties Ltd will demolish to make way for its new Commercial Bay development.

The Atrium on Elliott shop opened last week and the Downtown shop will close in May.

The Atrium on Elliott is a 14,000m² 4-level enclosed shopping centre & food court at the base of the Crowne Plaza Hotel & BDO Tower.

Alison Laity, director of Atrium owner Colwall Property Ltd, said: “Having the Warehouse opening alongside existing large-format retailers Rebel Sport & No 1 Shoe Warehouse has greatly boosted our leasing inquiry. We just wish we had more space to lease. Currently we have limited opportunities available within the centre, and we expect these to be snapped up quickly – especially with the impending closure of Downtown shopping centre.”

Ethics standards for property sector out to global consultation

FIABCI (the International Real Estate Federation) has won the support of 63 land, property & construction professional bodies & standard-setting organisations for a global consultation on ethics principles.

The international ethics standards coalition launched its consultation document this week and will close the consultation on 30 April.

Consultation document

Earlier story:
19 August 2015: International ethics standards coming for real estate professionals

Attribution: Company releases, FIABCI.

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Fletcher Building to be a standalone listed company

Building’s future outlined in Fletcher restructure programme

Fletcher Challenge announced the rest of its restructuring programme today, including the listing of a standalone Building company.

Fletcher Challenge Forests will also be listed and a new company will be established, Rubicon. The group’s Energy division will be bought by Shell and Apache Corporation for $4.6 billion, subject to consents in five countries.

Rubicon will pick up the pieces of the group — it will take a placement of $90 million in Forests shares and sub-underwrite $170 million of a Forests rights issue, will take Forests’ biotechnology and South American assets for $80 million, and will take the Challenge! Service station network, including its three terminals, for $20 million. It will also get 14% of NZ Refining Co and will have a role in the restructuring.

But mostly Rubicon will be what Fletcher Challenge has had trouble convincing anybody lately it can do: it will be the forward-looking outfit taking on bright and shiny new ideas.

The statement by Fletcher chairman Rod Deane said Rubicon’s strategy would be to commercialise emerging new technologies that have high-growth, high-margin potential.

The existing Building division will pay an 8c dividend on 9 November, to shareholders on the record at 27 October.

Dr Deane emphasised the New Zealand focus of the standalone companies, saying Building would have “a clear focus on the New Zealand building arena”, with “realignment of the portfolio towards core activities, including ‘new growth’ opportunities refocused on New Zealand.”

That policy conforms to some of the cleaning up of the portfolio in recent times, such as closing down most of the development section, but seems at odds with the recent attempts championed by Building’s chief executive, Terry McFadgen, to grow resource-based businesses in South America.

Fletcher Forests’ South American assets will be taken over by Rubicon, but there was no mention of Fletcher Building’s South American assets, which totalled $141 million according to the full group accounts released last week. The South American businesses lost $13 million on sales of $73 million.

The South American assets represent 8.7% of Fletcher Building’s total assets of $1.617 billion at 30 June. A year earlier, the $123 million in South American was 7.4% of $1.654 billion of assets.

Over the past two years, Fletcher’s Building division has slashed its Asian assets (the Chinese steel business) by $198 million to $21 million, and the Pacific Basin business from $159 million to $63 million.

In New Zealand, concrete assets have increased over the past two years by $19 million to $388 million, building products has fallen $22 million to $211 million and the construction, property & housing segment has been slashed, from $242 million to $187 million.

Indicative timetable

Fletcher Challenge’s breakup began with the sale of the Paper division in April and the rest of it fell into place with agreement to sell Energy to Shell and Apache.

The indicative timetable for the rest of the restructuring starts with a Commerce Commission decision on the Shell application relating to Fletcher Energy. That will be followed by the last annual shareholders’ meeting for the group, now of three divisions, on 2 November.

A meeting will be set down to formally separate the divisions. Documentation will be sent out late in December for a vote late in January and completion of the separations in early February, all going to schedule.

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Fletcher Challenge shows better returns

But the group’s in such a state of flux it’s hard to compare anything

Fletcher Challenge announced what seemed its best result in years — ebit of $892 million including unusuals ($445 million last year), net earnings on the same basis of $382 million ($101 million.

But it’s impossible from the numbers presented to tell how well the group is doing in what may be its dying days.

The group’s debt level is so low that it can’t function properly in pure financial terms. And the accounts presented for the Building group of businesses prevent a proper comparison between annual performances.

The New Zealand activities of the Building division are combined in the accounts with “Pacific”, which takes in the Hawaii construction business, sold midyear.

“NZ & Pacific” construction & property was down about a third in the June 2000 year, which Building chief executive Terry McFadgen said could be attributed to sale of the Hawaiian business.

Revenue figures produced at my request showed the New Zealand operation dipped in 2000, from $373 million to $343 million. It would be a monumental rewrite of the annual accounts to trace through all the New Zealand Building figures to see what the local operating profit and bottom line were.

The group is in wind-down mode. The Paper division has been sold and the other three will not present a combined set of annual accounts again.

Building and Energy will pay final dividends, record date 29 September, if a third-party sale transaction has not been recommended — Building’s will be 8c, taking it to 16c for the year compared to 12c last year.

Fletcher Challenge’s chairman, Rod Deane (right),
equivocated over this. He could have stated the precise date by which a recommendation would have to be made for the dividend to be stopped, but chose to prattle about talking to the Stock Exchange over details of what constituted adequate notice.

Plain fact is, he had his chance to say what the company is doing and chose to ignore the
opportunity. He woke this morning to discover the Australian stock exchange had released the group’s embargoed result announcement on its website last night, but that’s no excuse to quibble over a decent indication to shareholders on the short-term (three-week) future.

With due diligence conducted and negotiations continuing on the future for all three remaining divisions, Dr Deane obviously couldn’t say much about their futures — so perhaps his failure to be
precise on a simple detail is an oblique way of saying there will be offers on the table very shortly and there won’t be a dividend.

[More on this story later tonight.]

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Vote on FCL future by Christmas, Deane hopes

Silent on process details, but fervent on splitting letter share ties

Fletcher Challenge’s chairman, Dr Rod Deane, hopes shareholders in the conglomerate’s remaining three divisions will get a vote by the end of the year on the future of the group.

/images/9367/Deane-1.jpg” WIDTH=”213″ HEIGHT=”250″ ALIGN=”Right” BORDER=”0″ VSPACE=”5″ HSPACE=”5″>Talking about the separation programme at today’s announcement of the group’s annual results, Dr Deane said “the goal of this is to compare the merger or sale options with the value of standalone entities.”

There was a certain amount of speaking in tongues at the results briefing.

On numerous pages, the company declared that its Energy and Building divisions would pay a final dividend, record date 29 September, “unless the separation process results in a third party sale recommendation.”

That allows about three weeks for such a recommendation to be made.

Dr Deane said due diligence had been carried out on all three divisions and discussions were continuing with some parties. He would not name them, and would not identify what sorts of transaction any of them contemplated.

Executive director Michael Andrews mentioned cornerstone shareholders, and Dr Deane mentioned the shortest possible timeframe and best possible outcomes for shareholders.

He said for Forestry to be a standalone company, recapitalisation would have to be considered.

But if separation of Building, Energy and Forestry is a must, breaking up the components of each division is not — even though they are just as disparate and the sums of the parts have often been horrendous.

“The board said we don’t want to sell bits off, or you could be left with orphans,” said Terry McFadgen (left), chief executive of Building.

Nor did he think it likely that a buyer of the division would then turn round and break it up.

The Building division has been separated into five product groups — building products, concrete, steel, distribution and construction, property & housing.

Within building products, plasterboard & building papers, wood panels & doors and aluminium do not look particularly related.

Commercial construction also seems quite separate from the residential division which has a land bank and develops, sells and builds homes.

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Recycling Michael Andrews

New Fletcher Building man goes before he starts

Recycling Michael Andrews is a popular game at Fletcher Challenge, so it’s not surprising to see it happen again now that the man the disintegrating group hired to be chief executive of Fletcher Building, Alexander Toldte, has decided not to stay.

Mr Toldte was brought in to replace Terry McFadgen, who took the building division on an overseas building materials expansion programme before being sent to head the troubled Fletcher Forests in its new separated form.

Mr Andrews had been acting chief executive there, as well as being chief executive of the Energy division. Until the Building division gets a permanent chief executive, Mr Andrews will run the shop.

Since Hugh Fletcher’s departure, Mr Andrews has been chief executive of the whole group. On the way there, he’s done most things in the Fletcher organisation — including a stint running the building materials sector in the early 80s.

Overseas expansion followed overseas exit

The Building division had got out of overseas construction when Mr McFadgen decided on the materials expansion trip, but that and other overseas projects are definitely not in favour now.

However, international experience is fine if you’re thinking of applying for the Building ceo job.

“We have begun a search process to bring into Fletcher Building an external chief executive with broad international experience who will develop the architecture for Fletcher Building’s new direction,” group chairman Rod Deane said today.

Until someone is hired, Mr Andrews is to “ensure the strategic development of the stand-alone company continues” by concentrating on “the delivery of performance improvement initiatives to Fletcher Building.”

Three-point focus

In the group breakup, the board decided the new Fletcher Building should be a New Zealand-focused company, its strategy focusing on three specific areas:

Realignment of the portfolio to strengthen strong-performing assets, exit under-performing assets, and move the focus from overseas activities.

An aggressive cost/operational programme, moving to achieve operational best practice.

Greater participation in ‘new growth’ areas of the New Zealand building industry, such as e-commerce and composite building materials.

Translated, that means: Support winners, sell losers, keep your costs down, stay local, get into fashionable new product lines.

Behaviour raises questions

The emphasis on sticking to home territory begs several questions:

Why hunt outside your own (previously very big) organisation for a boss when you had the numbers and the job range to create internal career paths?

Why look overseas when local knowledge seems a most appropriate requirement?

How is one man able to run anything, and everything all at once, while nobody else in the whole organisation is apparently capable? The job search statement specifically excludes internal candidates.

If what was our biggest industrial empire is incapable of grooming skilled leaders, what hope for the country?

If the Fletcher Challenge board has no faith in its internal executives (apart from Mr Andrews), why wasn’t the Building division broken up and sold off to people who would have faith in how they run a business?

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Breaking up, but they still want to be a conglomerate

Is Fletcher Building an integrated unit or a bag of separate entities?

Fletcher Building: “It is no longer a random offering of building sector products, it is an integrated business.”

So said Fletcher Challenge’s managing director, Michael Andrews, nine-tenths of the way through the group’s three-hour annual shareholder meeting.

It’s a point I’ve discussed with numerous people since Fletcher Challenge decided to end its letter-stocks experiment and split the businesses.

The backing of a conglomerate might benefit sections of a business, but escape from a conglomerate could benefit them even more. Or they might be suited to someone else’s conglomerate, a thought the Fletcher Challenge mind would not easily countenance.

When the letter stocks were created, one suggestion was that this was a defensive move. Not so, said the chief executive of the time, Hugh Fletcher.

But the Fletcher style has always been to control the market, not to be a player in the market. The letter stocks were a way of maintaining overall control through the central board, while allowing pure-play investors the opportunity to focus on their particular interest.

The first of the letter stocks, Forests, was set up in 1993, followed in 1996 by Paper, Energy and Building. Forests has been a weak link for most of that time, not helped by increasing its debt to take over Crown forest interests in a joint venture with Brierley Investments and Citic of China.

It was an example of being the natural owner, the kind of attitude that saw Fletcher expect to become owner of NZ Steel in 1987.

This year, the “natural owner” syndrome has wandered off stage. Norwegians now run the pulp business, Shell wants to take over the energy business, Forests remains troubled and needs a lift from the others to get it out as a standalone.

Family gems

And then there’s Building, the Fletcher family gem plus a few other notable New Zealand families’ gems (such as Firth, Winstone). Pulp is a commodity, energy is a handful of commodities, Fletcher Building is different. It’s a series of businesses in an industry sector, which might or might not be related.

Through the era before the letter stocks, and the era of the letter stocks, directors have spent a fair amount of time at half-yearly result announcements trying to explain why this division hasn’t performed too well, or as well as they thought it could.

Mr Andrews said today, in discussing its performance, “Everything must start at the customer end.” He went on to mention “design solutions around global trends,” which sounds pretty fancy, but might well be described as meaningless head office stuff.

The statement that “everything must start at the customer end” sounds like a fact. But they’re still looking for large niches to play in. The group has wandered round various businesses over the years — banking, shopkeeping, car yards, stock & station before it was sent back where it came from, total control of gas, aggregates in South America — and now the opportunities for Building seem to be in sustainable infrastructure, for example composite building materials.

While it’s nice to look for a new opportunity niche, the existing businesses offer their own gains. Procurement initiatives among them will save $35 million a year. Winstone Wallboard’s Living Solutions and Firth’s Concrete Modes “signal a new era in sophistication,” Mr Andrews said.

He viewed the integration of these businesses as “taking materials from their trade sphere, from their trade focus to one much more attuned to customer needs.”

But then you get back to the reality of things like house starts: “The first quarter has seen market conditions toughen again [but] residential construction seems to have lifted off its low. We do not expect a recovery in this sector until 2001.”

The overview is there again — and not the overview of the marketer, but of the market controller. Letting go might do some of these companies good — as several small shareholders mentioned at the annual meeting, it wasn’t the share structure’s fault that the group didn’t perform, it was the directors’.

The meeting ended with approval to proceed with the Forests rights issue, and with the chairman, Dr Rod Deane, and Mr Andrews re-elected.

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One good fall at Fletcher was the debt ratio

Miserable finale for Fletcher conglomerate, and no talking up the future where buildings are concerned

The only good fall in the Fletcher Challenge half-year result announced today was in the group debt ratio, from 32.3% a year ago to 28.5% in June and 13.1% in December.

This improvement didn’t show in the Building division, where the debt ratio fell only 1.8% to 31.6%.

Best performer for the six months was Energy, earning $308 million including unusuals. Discontinued operations (the bye-bye offering of the Paper division) contributed $239 million.

The performance of continuing operations was skewed by the $529 million writedown in realisable value of the Central North Island Forest Partnership, between Fletcher Challenge Forests and Citic of China. Net result for continuing operations was a $217 million loss ($241 million profit in the December 1999 half).

Over the whole remaining group, after the sale of the Paper division, net earnings for the half fell from $239 million in 1999 to $22 million, including unusuals, giving a six-month return on equity and capital funds of only 0.85% (3.12% in 1999).

Operating revenue fell 28% to $2.749 billion, earnings before interest and tax (ebit) including unusuals fell 61% to $176 million, ebit excluding unusuals fell 3.6% to $352 million.

Net earnings including unusuals fell 91% to $22 million, excluding unusuals those net earnings fell 12% to $119 million.

Interest cover has increased, from 3.79 to 7.65 including unusuals, from 3.04 to 15.3 excluding unusuals.

A contingent outlook

The group outlook depends on the directors’ approach to Greymouth Petroleum’s $3.70/share bid for Fletcher Energy, which the board said would not result in deferment of next Tuesday’s meeting to approve the separation of the letter-share divisions into stand-alone companies.

If the meeting doesn’t support the Shell/Apache offer for Energy, the group may have to have an outlook. If the separation proceeds, the new Building company in particular will have to look closely at further dismantling itself into smaller stand-alone businesses which can show they operate well.

Building abysmal

As a conglomerate, Building is an abysmal performer. In the December 2000 half it lost $41 million on $938 million of equity and capital funds. In the better December 1999 half, with which all the Building division sector results unfavourably compared, the whole division returned a $46 million profit on $948 million of equity and capital funds — 4.85% for the half.

For Building, a comparison with the boom conditions of 1999 is unreasonable because the housing industry was intent on over-stretching itself. The level of new dwelling consents was unsustainable at 25,000-plus, and any supply based on that unsustainable level had also to drop back.

Go back one year to the December 1998 half, and you find net earnings were only $17 million on $984 million of equity and capital funds — a 1.78% return for the half.

One of the glaring inadequacies about Fletcher Challenge results over the years has been the amount not told about the businesses.

My next article delves into that aspect of the results a little further.
Fletcher looks for negatives

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First and last, the bad news

Fletcher looks for the negatives in its business, and finds plenty

Down went the dictate, it seems: Now you’ve found a replacement loss-maker overseas, spend some more money on it. That mainstay of the traditional Fletcher businesses, loosely termed “property,” we’ll get rid of that. Just to confuse the punters whose investment support we’d really like to have, we’ll announce that we’re going back to our core local businesses.

Oh, and at the time of the half-year announcement, we’ll skip through all that in a few lines.

There was a time, Fletcher Challenge directors spent the whole day in a briefing to explain its businesses exhaustively to analysts and the media.

This time round for the media, after a lockup session to allow journalists a couple of hours to digest the numbers, group executive director (and Building interim chief executive) Michael Andrews (right) did a short version of the highlights and answered some questions. Some of the many executives lining the back wall helped out.

But not too many questions: the conference room was booked for another function shortly and Mr Andrews was due on the first of his conference calls with analysts at 11, on Building.

After half an hour or so of the conference call they gave up. Mr Andrews had been heard at the start, then nothing from him came through. Only the calls from analysts saying they were booking out of the call, or asking what was going on. Just as well they abandoned it: Mr Andrews looked puffy at the media session and mumbled the start of the conference call.

Not an auspicious day for Dr Rod Deane, chairman of Fletcher Challenge who has been masterminding the breakup of the conglomerate, and who is also chairman of Telecom.

Response on South America unconvincing

One part-heard response to an analyst’s question on the South American businesses sounded as unconvincing second time round as it did when Mr Andrews responded to my view, in the media session, that Fletcher Challenge seemed to have found a replacement overseas business to lose money on, after selling out of North American construction and property and getting out of a lot of Australian business.

A year ago it went like this: “Fletcher Challenge Building’s operations in Peru and Bolivia experienced difficult market conditions. In Bolivia a liquidity squeeze is continuing to suppress demand and no significant improvement is forecast in Peru until the second half of this calendar year [July-December 2000]…”

In the latest interim review, covering that six-month period, it went like this: “Market conditions in Peru and Bolivia were very weak and the business recorded a loss at the ebit level of $8 million compared to a $4 million loss in the previous corresponding period.

“In Peru the economic slowdown dramatically reduced concrete volumes which were 28% below the same period last year while prices were similar… During the six-month period we invested a further $10 million expanding our Peruvian aggregate operations, purchasing equipment and a 10-year right to operate the La Gloria quarry in Lima…

“The Bolivian operations underwent significant restructuring during the period in the face of a very weak economic environment. Staff numbers were reduced by over 200 and further restructuring is planned…”

At the media session, Mr Andrews said: “We have businesses that are well placed in the structure of the economy in which we operate. The issue which is giving us problems is that both national economies are in severe underperformance.

“The positions we have are extremely well structured in terms of the industry.”

He said “we will look at our position in South America” but added that timing was not something the company would comment on. And to another journalist he said: “The economic performance of those countries is so poor. That is the driver of our performance. Timing is the thing. We need to think that through pretty carefully.”

It struck me that Mr Andrews, who in the past has been extremely perceptive, could now only stumble to his next thought.

“Hunt the margin” turns into “margin is key”

After I’d looked through the Forests and Building last annual reviews, Forestry Corp purchase presentation from 1996 and numerous other documents the previous night, checking for details such as the valuations on forest land and returns on Building investment, I wanted to know about Building margins.

How did Mr Andrews see the division/company raising margins below this time’s negative but at other recent times very low levels? He said it was a focus of management, that the reward and incentive schemes would help. Later, he said, “One of the key issues we’re working on is margin.”

To me, this was a man sadly not in control — perhaps not surprising in the circumstances of a Fay Richwhite-GPG ambush on Energy, with only a week to go before shareholders are to vote on selling that division to Shell/Apache as an integral part of the whole separation process, but nevertheless not in control of his domain to the extent he usually is.

Big numbers glossed over

Some of the matters glossed over in the Building review this time were “a provision of $25 million [at ebit level, which] has been established for a dispute in respect of the construction of co-generation plants in Australia,” a $5 million charge resulting from parts of the concrete business, and a $7 million writedown on the value of Auckland properties. “Group restructuring costs incurred in the period of $45 million are also included.”

In the review for distribution to shareholders the property writedown is given as $11 million (at ebit level). It also shows “the two long-outstanding disputes in Australia continue as a drag on earnings with $33 million of losses recorded during the period” and mentions that the Construction & Property business “incurred $3 million of restructuring costs as it commenced the downsizing of its property operations”. Decimation, was my understanding.

Mr Andrews said the property writedown was on a range of properties around Auckland, including the Lunn Ave quarry which Winstone Aggregates plans to stop working by the end of this year. Winstone and joint owner Brierley Investments began marketing some of their proposed redevelopment of the quarry site last year, until the city council rejected the proposed private rezoning.

Although neither Fletcher (as Winstone owner) nor Brierley was saying so, both wanted the zoning and consent processes finalised so the whole development project could be put on the market. The quarry’s value would have risen sharply. A long-anticipated end to quarrying was hardly something to remark on in valuation terms, but in any case no figure was given.

Somebody could probably have dug out that figure — and in a report from a property-industry-focused company , even a property-industry conglomerate wanting to focus just half an eye on basics, it would be presented.

Fighting fit

An organisation that wanted to come out fighting for a fresh dawn would certainly indicate that the quarry’s value would be enhanced by prospective redevelopment, albeit delayed.

Instead, we have none of that. One conclusion is that the books are being swept clean, the letter shares will be marked down as they expire and the new company shares, assuming separation is approved, will look good rising from a lower-than-reasonable base. I didn’t put that possibility to Mr Andrews or other executives on Wednesday; it may come out of the debate at next Tuesday’s separation meeting.

The outcome of the strategic review of the Building portfolio of businesses should be revealed by late April. Perhaps then the corporate starch will be washed into the shape of a keen young smile, and more will be made of some of the group’s positives, like having your crane on the prominent building rising on the Auckland waterfront, the PricewaterhouseCoopers Tower.
FCL group results

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National interest, best price, best value — the Fletcher separation debate stopped well short of quality

Vote update: Final figures Fletcher Challenge released on the meeting showed 99% of votes endorsed separating Building as a stand-alone. On the Energy sale to Shell/Apache, both the Energy and Building/Forests votes were 96% in favour. The separation transactions go to the High Court next Thursday for a final ruling.

Peak introduced a card game for Fletcher, but held no worthwhile cards

In Australia, Royal Dutch/Shell’s $A10 billion takeover of Woodside Petroleum would be against the national interest, according to the Government backbench treasury committee.

In New Zealand, Shell Overseas Holdings Ltd’s $US1.63 billion bid, with Apache Corp of Houston, for Fletcher Energy was claimed by Shell’s regional exploration & production director, Raoul Restucci (left), as a bid by a New Zealand company. Shell had been here for 89 years, he said.

The Woodside battle continues. Under the public grandstand of Ellerslie racecourse in Auckland, Shell clinched the Fletcher Energy deal, albeit for a price bumped up once, by US21c/share, after a five-hour meeting.

There was no need to open the betting booths, although last-minute Energy bidder Peak Petroleum knocked off 15% of the 25% needed to defeat the sale.

Peak background destroyed any winning chance

Peak was never going to win. It had no offer on the table, just the threat of one at a higher price than Shell had offered. Its ace was the nationalism card, thrown down by a frontman who’s lived in Ireland for a year, Mark Dunphy.

Mr Dunphy (right), who headed Cultus Petroleum for Fay Richwhite, is an old Fay Richwhite hand. Sir Michael Fay also tried Ireland as a place of residence for a while during the heated Winebox inquiry era; he and David Richwhite seem to prefer Switzerland these days. The term “absentee directors” had to be raised during the meeting.

Mr Dunphy was backed by some huffing and puffing from GPG’s local leader, Tony Gibbs, whose chairman, Sir Ron Brierley, dwells in places like London and Sydney. Said Shell’s Mr Restucci, referring to nobody in particular: “We’re not in as an asset stripper, as a corporate raider, but for the long term.”

To the suggestion from Mr Dunphy that “New Zealanders are fed up with becoming a branch economy subservient to companies like Shell,” Mr Restucci said: “We’re committed, we’re passionate towards securing this acquisition.”

For Dr Deane, the Suits were always in full view

Up on the rostrum, Fletcher Challenge and meeting chairman Dr Rod Deane had a clear view down on his left of what was most important in the meeting: the Suits. Several rows of them.

The Peak people might have had some greenmail in mind, though you couldn’t pinpoint that from the speeches, but turning down the Suits on this deal would be far more destructive for Dr Deane, Fletcher Challenge and, down the food chain, the small investors.

Dr Deane (right) is chairman of Telecom, which was changed forever in the 80s through some Fay Richwhite merchant banking intervention, and he has fought the traditional control-freak behaviour of the Fletcher conglomerate empire to create clearly focused, stand-alone industrial companies (and a washup, but you couldn’t do it all at once).

The programme still has a way to go. In Fletcher Building, for example, the review of the businesses will continue until late April. A review of the board also seems a sensible aspiration, to me, but that may be a forlorn hope.
Nevertheless, the argument over Energy was also important to Building.

All the resolutions before the 1200 shareholders on Wednesday were inter-related, so if the Energy sale was rolled, Building would also not have been separated.

Dr Deane was relentless in pursuing the deal as the Fletcher board had finally stuck it together after more than a year since they decided to go down the separation course, though he also did his best to sound fair at the meeting.

It struck me that, after Shell upped its bid so quickly when Peak (or another piece of the consortium, Greymouth) raised its head, Dr Deane pushed to close out any further bidding war.

This was serious poker: Shell had done all the analysis on how to keep its spending down to $US1 billion (Apache gets the rest of the bill), Dunphy and his (very clean) street-fighting mates had put in a bid without showing any money, and Dr Deane, in his best pinstripes on suit and tie, was along to see what he could do with a pretty little deuce.

He’d had trouble enticing bidders in the first place. His serious bidder was threatening to walk and the competition might not be serious. Imagine the change in price next time if either/both happened. Down on the left of the rostrum, the Suits, the people who would change the numbers if Dr Deane let this transaction escape.

Some mumbo and jumbo

Michael Andrews (left), the Fletcher Challenge chief executive who will hold that position at Building until they find someone else, said the board had considered Energy as a stand-alone, like Building. It could do that, but had to invest in its future, he said.

Mr Andrews then rambled for some time, omitting to mention that the components of Fletcher Energy (and a few other old pieces like Natural Gas Corp) had done fairly well as government enterprises or local stand-alones before.

He finished with an astonishing rationale: “It’s the belief of Grant Samuel [which compiled the appraisal report] and most brokers that Energy stock would trade on the open market at significantly less than the [value of the] Shell/Apache offer.”

Fletcher has long expertise in bad share prices

Fletcher Challenge has spent eight years doing bad sums on share prices. It entered the letter-stocks phase for that reason, seeking to get more realistic market value for its component parts while ensuring nobody could buy any of those parts.

The early days of the letter stocks showed little change from before. And afterwards, market shifts played a dominant role.

What to spend on now, for investors

Dr Deane argues against the nationalistic basis for investment, seeking best value. One issue which didn’t surface at the separation meeting was to ignore the Peak offer for Energy and compare Shell’s bid with what investors are going to spend all their money on now.

The strong interest from ordinary shareholders in the separation meeting shows a strong local investment desire, and the best place for that money to go is locally. These investors need strong stocks to follow, and the Fletcher board has chosen to sell that option down the river.

From that viewpoint, the Fletcher board did not look after its New Zealand investors’ long-term interests as well as it might have, although it probably got the best price for the moment.

But nobody got near that sort of debate at the separation meeting. Instead the focus was on the last-minute interloper and the transnational, where for most shareholders it might more sensibly have been on the mid to long-term values of Building and Energy as stand-alones versus selldowns. Now these investors will have to find some other spot for their money, with fewer options available.

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