Reports: Wesfarmers buying Fletcher stake

rob-scott-wesfarmers-mdFletcher Building shares jumped 13 per cent on Friday after the Sydney Morning Herald reported that Wesfarmers has acquired a small stake in the company in a possible precursor to a full takeover.

Fletcher rose 75 cents to $6.59 on the NZX having sunk to its lowest levels in almost six years last week.

The SMH cited sources close to Wesfarmers as saying it had bought between 3 per cent and 4 per cent of Fletcher.

In a media release distributed on the NZX and through Wesfarmers on the ASX on Friday morning, Fletcher said it had no knowledge of Wesfarmers building shares in its business.

“The company has no knowledge of Wesfarmers owning Fletcher Building shares, therefore it can neither confirm nor deny the report,” it said.

That would amount to up to about 27.9 million shares. There have been no trades of that size this year although a stake could be built up gradually.

Investors said there’s no sign of a large buyer in the market and it isn’t clear whether the report is correct although it could make strategic sense for Wesfarmers which acquired the struggling Coles Myer business in 2007 as a turnaround target.

Wesfarmers acquired Coles along with Kmart, Target and Officeworks for A$22 billion in 2007 and the supermarket chain now makes up about a third of its earnings.

At the time of the acquisition, Coles had been losing market share and facing declining sales and earnings.

Wesfarmers had picked up a small stake in the business ahead of launching a takeover.

Last month, Wesfarmers managing director Rob Scott announced plans to spin off Coles, which had been transformed into “a mature and cash-generative business”.

“Conceptually for Wesfarmers could it make sense? Absolutely,” said Matthew Goodson, managing director at Salt Funds Management, which oversees more than $1.6 billion of shares in Australia and New Zealand.

“Coles Myers was a large business with temporary issues. Fletcher is in the same position in a broad conceptual sense.”

Fletcher stock has dropped about 18 per cent in the past 12 months, shrinking its market capitalisation to about $4 billion.

Fletcher slumped to a $273 million loss in its first half, driven by losses at its Building + Interiors unit, and chief executive Ross Taylor has embarked on a strategic review of the entire company, with details to be announced in June

It had to get waivers from lenders after breaching covenants and is still in talks with its US noteholders and bank syndicate to negotiate new lending terms.

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