The head of a fund manager says it’s “absolutely true” that Fletcher Building has become a target for Australian investment banks, but whether they would be successful was another story.
Andrew Bascand, managing director of Harbour Asset Management, said investment banks in Australia were trying to drum up business during a quiet patch.
Seeing Fletcher Building’s share price drop because of cost-overruns in its construction business, they were now trying to find the firm a potential buyer or part-buyer.
“It’s a share price opportunity rather than trouble,” Bascand said.
* Fletcher Buildings expects earnings could be up to $150m less than forecast
* Australian media claims buyers are chasing Fletcher Building
However, he said Fletcher was no stranger to persistent self-review, selling off parts of itself since the Fletcher Challenge conglomerate was broken up in the late 1990s.
The unrest could also stem from frustrated large investors in Fletcher who have lost money and “would like to see something happen”.
But whether there were willing buyers in the wings was something else.
Fletcher had been eyed up by global investors and building companies for years, Bascand said.
“It’s not obvious to me, now that we’re at the peak of the building cycle, why they would strike now. Why didn’t they do it when the stock was $5?”
Fletcher Building recently warned shareholders that its profit would take a bigger dive than previously forecast, thanks to budget blowouts in its building and interiors arm.
Instead of making between $720 million and $760m, the company said it was expecting an annual profit of between $610m to $650m, a downgrade of up to $150m.
There were two big jobs in particular at fault, which it would not name but are believed to be the Justice Precinct in Christchurch and the Sky City convention centre in Auckland.
Fletcher’s share price has fallen from $10.39 in mid-February to $7.85 last week, recovering to around $8.25 early Thursday.
The company declined to comment last week when the buyer rumours first surfaced in Australian media.
However, it has confirmed that heads have rolled. Recently it appointed the construction arm’s chief operating officer Michele Kernahan as the division’s new chief executive.
“We brought the new people and processes in because we felt this business was off track and we needed to bring it back on,” chief executive Mark Adamson told media recently.
Harbour’s outlook on the construction sector is that it is being buffeted on a number of fronts, particularly rising construction costs, which could stunt commercial property work and limit seismic strengthening.