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18/4/2018 — General
Share offer, market talk and trading halt for FBU
By Dene Mackenzie

Investors are taking a wait-and-see approach as Fletcher Building Ltd (NZX & ASX: FBU) shares rise as an Australian investment fund continues to build its stake in the New Zealand company.

Ellerston Capital's interest in Fletcher Building has passed 5.1%, requiring the Australian fund manager to make a statement to the ASX and NZX. However, its interest in the construction and building materials company has been no secret.

Ellerston holds Fletcher in at least two of the funds it manages. In its Ellerston Australian Share Fund, the firm name-checks Fletcher as one of three turnaround stories – “sound businesses that have historically generated poor returns or under-earned versus their potential, are in transition and where we think earnings/returns will improve over the medium term.”

Yesterday Fletcher Building requested a trading halt on both bourses after earlier giving an investor presentation and said it expected to seek a resumption of trading on Friday.

Before the trading halt, Fletcher announced yesterday that it was undertaking actions to strengthen its balance sheet and better enable it to execute immediate and longer term strategic objectives.

It was raising $NZ750 million through a fully underwritten pro rata 1 for 4.46 accelerated entitlement offer at $NZ4.80 per share, and that there would be institutional and retail entitlement offers with book-builds for any shortfall.

Craigs Investment broker Chris Timms said 5% was a long way away from a takeover bid but said Ellerston could creep up to a 19% stake without making any formal offer.

It was unclear if Wesfarmers was behind the bid and brokers were watching with interest as events unfolded.

Asked if Fletcher was a likely takeover target, Timms said any New Zealand company was a takeover target in the current business climate.

The beneficiaries of the Ellerston buying had been existing shareholders. Last Thursday, the shares closed at $5.84. On Friday, shares traded as high as $6.66 and on Monday they traded about $6.50 for most of the day.

“Without the Ellerston interest, shares would still be trading below $6,” Timms said.

If Ellerston bought at the low of $5.84 a share, it could have paid about $208.9 million. The fund manager, which oversees about $A5 billion ($NZ5.3 B) in investments, also holds Fletcher for its Ellerston Australian Market Neutral Fund - one of two investments in the building materials sector that it holds along with Adelaide Brighton.

Ellerston has been buying Fletcher in the face of the company's ongoing bad news.

“We added to our pair within the building materials sector, with both Fletcher Building [-5.1%] and Adelaide Brighton [-3.0%] underperforming the broader market,” Ellerston said in a March fund report.

Fletcher slumped to a $273 M 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. It had to get waivers from lenders after breaching covenants and was talking with its United States noteholders and bank syndicate to negotiate new lending terms.

That led to speculation the company could shed non-core businesses though Taylor has said the problems are largely confined to B+I.

-additional reporting by Ross Louthean.

*Dene Mackenzie is business editor of the Otago Daily Times.

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