Source: Radio New Zealand
Six months after announcing a potential sale was on the cards, Fletcher Building revealed on Tuesday that a binding agreement had been reached, and its construction division would be sold to French giant Vinci.
The market reaction was generally positive — for years the construction division had been problematic for Fletcher Building, and the source of some high-profile cost blowouts and delays.
Fletcher Building is set to receive $316 million from the sale (potentially rising to $334m), which includes Brian Perry Civil, Higgins and Fletcher Construction Major Projects, but excludes its South Pacific operations.
Generate Wealth investment specialist Greg Smith said the sale was “broadly positive”.
“They’re exiting a structurally low-margin, high-risk construction business that you could arguably say has destroyed value for more than a decade,” he said.
“It’s really only consumed capital over the past 10-15 years, it’s absorbed cash, and it’s generated write-downs and volatility.”
Smith said the construction arm delivered some large projects that had left some “nasty surprises”, notably the NZ International Convention Centre.
In a note, Forsyth Barr senior analyst Rohan Koreman-Smith acknowledged the construction division’s troubles, and also viewed the sale as a positive.
“The construction division has been a significant drag of FBU’s cash flow, with major cost overruns in several key projects (including the NZ International Convention Centre) resulting in $1.6bn of significant items over the last decade,” he said.
Craigs Investment Partners investment director Mark Lister said Fletcher was receiving a “good price” for the business.
“More importantly, it’s the right strategic move,” he said. “It will help the company pay down debt and that needs to come down a little bit further.”
Lister said it moved Fletcher a step closer to resuming dividend payments, while sorting out its balance sheet.
The industry impact
Smith said the arrival of Vinci would mean a new player with the ability to scale in the New Zealand construction market.
“[They are] possibly one that has a more sophisticated approach to pricing projects and pricing risks, and, of course, deeper pockets as well,” he said.
“They will be a very attractive bidder potentially for a number of projects that many players would be interested in bidding for … including the Warkworth to Te Hana expressway.”
Lister did not think there would be any obvious impact on the industry.
“It’s not going to be a negative, we don’t lose this player, it will just change ownership,” he said.
“[Vinci is] a very global business … and it’s listed on the Paris stock exchange, so this is a big company that knows what they’re doing.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
