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Is Wesfarmers buying up Fletcher's stock?
Wesfarmers could be eyeing NZ group Fletcher Building
Wesfarmers could be eyeing NZ group Fletcher Building
 
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Brickworks warns of a shift to imports and Knauf's battle to buy USG continues
HNN Sources
Wesfarmers managing director Rob Scott has signalled he would look for new business to drive growth and this could include Fletcher Building; Brickworks flags off-shore buying; Jeld-Wen has acquired Australian window and door maker A&L; USG said a USD5.9billion takeover offer from rival building products manufacturer Knauf is inadequate; DuluxGroup ups the ante on digital with an AI-powered digital analyst; Philips Lighting intends to change its name to Signify; QEP has purchased a Queensland-based flooring company; and Briggs & Stratton' Resilient products will be on show at the upcoming Hire & Rental event in Brisbane (QLD).
Fletcher Building takeover target for Wesfarmers?

There is growing speculation that New Zealand's Fletcher Building has become a potential acquisition target for Wesfarmers. Sources close to the company have told Fairfax Media that Wesfarmers has bought a stake of about 3 to 4% in the construction and industrial materials company.

Wesfarmers is expected to chase acquisitions in its industrials division after completing the demerger of Coles. The Coles business accounts for 60% of the capital employed across the Wesfarmers portfolio so the spin-off should free up funds to invest in existing and new businesses.

The revelation of Wesfarmers' stake in Fletcher comes as the market anticipates where it will look to expand under managing director Rob Scott. When Mr Scott announced that he would spin off Coles into a separate company sitting in the ASX top-30, he said the supermarket chain was not growing fast enough to generate the kind of returns shareholders expected.

He said carving it out would allow the company to drive growth at its remaining businesses and look for new acquisitions that promised the kind of growth Coles delivered during its decade-long turnaround under Wesfarmer's ownership.

The potential attractions of Fletcher as a turnaround investment would potentially fit well with Wesfarmers' stated strategy. The Auckland-based company has been in crisis in recent months after cost blowouts at a string of construction projects led to heavy losses and it breaching debt covenants with its lenders.

Fletcher's troubled projects include the building of Auckland's International Convention Centre for listed casino company SkyCity, which Fletcher estimates will lose it $410 million on instead of an intended $400 million to $500 million profit. The project is due to be completed about six months behind schedule in mid-2019, and SkyCity has indicated it will take legal action to recoup losses from Fletcher because of the delays.

Fletcher's building and construction division lost $619 million in the first half of 2018, and the company ran at a loss of $332 million, down from a $310 million underlying profit in the same half a year earlier.

Fletcher's business includes making building products, including under the brands Winstone Wallboards, Altus aluminium, and the road barrier supplier Australian Construction Products. It also has a number of retail brands selling trade and plumbing supplies inducing Tradelink, PlaceMakers and Calder Stewart Roofing, which could complement Wesfarmers' Bunnings chain.

Fletcher is dual-listed on the Australian and New Zealand stock exchanges and is one of the largest listed companies in New Zealand. It has assets on both sides of the Tasman and a market value of NZD4.1 billion (AUD3.9 billion). However Fletcher's share price has fallen 45% since January 2017 and it is considering selling assets as part of a business-wide review.

It is likely Wesfarmers would buy stock on an anonymous basis through a nominee entity and would only have to declare its holding once its stake reached 5%.

Sydney-based fund manager Ellerston Capital recently took on a 5% stake on behalf of a secret investor in Fletcher Building. Ellerston said its stake of Fletcher shares, worth about $214 million at their current price, were "owned by third party account under the discretionary investment management of Ellerston Capital".
Brickworks' offshore option

Building products group Brickworks has begun looking into shifting some production offshore as it prepares to face higher energy prices. The company has warned that the surge in gas prices will add $20 million to its costs over the next few years that it will not be able to absorb.

Brickworks has posted a net profit of $97 million on revenue of $396.2 million for the half-year period ending March 31 2018. The profit and revenue were down 6.7% and up 7% on the prior corresponding period (pcp).

The company has warned that activity in the building industry was being hampered by "trade shortages and a lack of titled land". Managing director, Lindsay Partridge, told Fairfax Media:
We're looking at alternative markets such as New Zealand and Malaysia. Malaysia already has a well-developed brick sector.

Brickworks already sources some of its bricks from Spain, where the deep economic downturn has helped to make some of this product competitive. Mr Partridge said:
Brick prices from Spain are very cheap, and back-freight prices are also cheap.

The company was also facing the prospect of a lack of gas supply from 2025, on present indications, he said. Brickworks has contracted gas supplies until the beginning of 2020 but with supplies for 2019 priced at "76% above where we are today", Mr Partridge said. Similarly, the company was facing steep rises in the price of electricity.

"On the forward price curve we are facing up to an 80% increase", he said of the outlook for the price of electricity.

Mr Partridge's warnings came as the company said it was enjoying a "full order book" across the east coast of Australia, where builders have a long pipeline of work, with little change expected through to the middle of the year at least.

Given the size of these projects, they will take some years to complete, with the prospect of continued buoyant activity for a few years yet, he said.
Jeld-Wen grows footprint in Australia

Window and door maker, Jeld-Wen has completed the acquisition of A&L, an Australian manufacturer of residential aluminium windows and patio doors. Founded in 1980, A&L has a strong reputation of supporting homebuilders and contractors. It has a network of manufacturing facilities and showrooms across the eastern seaboard.

Jeld-Wen has acquired five other Australian-based companies since 2015. John Linker, senior vice president, corporate development and investor relations, said:
A&L's excellent position in the first-time home buyer market expands the reach of our current product range and customer base. The addition of A&L's brand name expands our portfolio of leading Australian brands and supports our strategy to build leadership positions in attractive markets. We expect to deliver synergies through operational savings from the implementation of JEM [Jeld-Wen Excellence Model] and by leveraging the benefits of our combined supply chain...

A&L was privately held by its founders. Terms of the deal were not disclosed. Jeld-Wen expects the acquisition to add approximately AUD130 million in annual revenue.

In another recent development, Jeld-Wen president and CEO Mark Beck unexpectedly departed the company. According to a statement, Mr Beck and the board of directors decided to part ways "by mutual agreement". Kirk S. Hachigian, who chairs the company's board and preceded Mr Beck as president and CEO, will take over as CEO while a search for a new leader continues.

News of Mr Beck's departure comes soon after Jeld-Wen reported that revenues for the fourth quarter of 2017 grew just 0.3% to USD976 million.

Mr Beck, who joined Jeld-Wen in November 2015, oversaw the company's decision to go public. The company launched its initial public offering (IPO) in January 2017 on the New York Stock Exchange.

According to filings with the Securities and Exchange Commission, Jeld-Wen is No. 1 in net revenue for residential doors in the United States, Australia, Germany, Switzerland and Scandinavia. In Australia, it owns the Corinthian, Stegbar and Trend brands.
Knauf's offer to buy USG is rejected

German building materials supplier, Knauf is seeking to take over the Chicago-based gypsum manufacturer USG Corp. It recently called on USG shareholders to pressure it to engage in deal talks by withholding their support for its board nominees.

USG have rejected a USD5.9 billion bid by Knauf, arguing it undervalued the company. That was despite Warren Buffett's Berkshire Hathaway, which is USG's largest shareholder, offering to sell its 31% stake at that price, if Knauf clinches a deal for the entirety of USG.

Knauf said in a statement that voting against USG's four board nominees would send a message that the company must engage in deal negotiations. USG has a staggered board, meaning only four of its 10 directors face a shareholder vote this year. It also has a "poison pill" defence available, preventing Knauf from launching a hostile bid.

USG said its financial and legal advisors met with Knauf's advisors in one of several meetings between company representatives. It added that Knauf's campaign against its board was a tactic to push through what it called a "wholly inadequate, opportunistic" USD42 per share cash bid.

In the meeting, Knauf's advisors suggested that USG consider providing at least limited additional information under a non-disclosure agreement, Knauf said in a regulatory filing. USG's advisors responded that the company would not do so, according to Knauf. USG chief executive Jennifer Scanlon said in a statement:
Knauf knows this industry well and understands that USG, with our Sheetrock brand, is the crown jewel within North American building products, and to date has not indicated any willingness to pay full value to all of our shareholders.

Knauf has so far resisted raising its bid further. It has argued that USG's share price has "dramatically and consistently" underperformed the market, and that the company would require significant capital investment to remain competitive. It has called its bid, which infers a 30% premium to USG's 12-month average closing share price, attractive.

Knauf also said it had not decided whether to take up Berkshire on its offer. Berkshire's proposal is unusual, structured as a six-month option contingent on Knauf buying the rest of USG. Knauf would pay a USD2 per share upfront fee, or USD86.8 million, which Berkshire would keep if the six months expired without an acquisition. The option's exercise price would equal Knauf's eventual bid for USG, less USD2 per share.
DuluxGroup makes more use of digital

Paints, garden care and home improvement manufacturer, DuluxGroup, is increasing its investment into machine learning and algorithmic-based virtual assistance technology by signing an expanded partnership with Complexica.

Nine months after announcing its initial investment into the Complexica Customer Opportunity Profiler (COP) system for its trade paints, texture coatings and protective coatings business, the company will now extend usage to its group digital capability team.

Specifically, the plan is to integrate COP, which is based on Complexica's AI-powered digital analyst and sales assistance tool, Larry, with the Adobe Campaign Platform to drive more personalised campaigns for its brands, Dulux, Yates, Selleys and Cabot's. DuluxGroup group head of CRM, James Jones, said:
Complexica's software will enable DuluxGroup to reduce the amount of time required to generate usable insights, increase our campaign automation capability, personalise our communications based on core metrics, and close the loop on sales results to optimise ongoing digital marketing capability.

DuluxGroup started rolling out the Adobe Marketing Cloud more than two years ago as the centrepiece of its marketing technology stack to support its digital offering to customers across both B2B and B2C brands.

Complexica director of customer engagement, Mike Costa, said DuluxGroup is a significant customer and said his team was looking forward to expanding the relationship across the digital space.
Our next-generation Customer Opportunity profiler will provide DuluxGroup with the seamless ability to generate personalised campaigns using the advanced machine learning and knowledge discovery algorithms within Larry, the Digital Analyst.

Initially, the original project (COP) was designed to help automate questions for DuluxGroup's sales team around which customers to visit and prioritise and what to discuss with each customer.

Complexica managing director, Matt Michalewicz, said the new deployment is for Dulux's digital team, which has a goal of driving personalisation into their digital communications by better understanding was is the next-best conversation to have with each individual customer.
From there, it's then about deciding whether that personalised conversation/message should be delivered via a sales rep or via a digital channel.

Complexica pitches Larry as a form of Siri for business, using a combination of algorithms on big data sets to help with data-driven decision making.
Corporate name change for Philips Lighting

Philips Lighting is changing its name to Signify, shareholder approval pending.

The Dutch company said the new moniker originates from the fact "that light becomes an intelligent language, which connects and conveys meaning". The company, however, will continue to use the Philips brand on its products.

The Philips Lighting stock exchange ticker will remain LIGHT.

The name change could also reflect the move by lighting vendors such as Philips to outfit LED lights, luminaires, and the lighting infrastructure with chips and sensors connected to the Internet. Vendors hope to turn lights into valuable information nodes, and to turn the lighting infrastructure into vital information networks linked into cloud computing systems.

This Internet of Things (IoT) strategy would then position lighting vendors as gatherers and providers of data that will help run all typed of operations.

LEDs magazine also speculates there may be another reason for the rebranding. The company's ownership split from former parent Royal Philips contractually required an eventual change. Royal Philips spun off Philips Lighting in an IPO in May 2016, at first retaining a large share which it has been steadily reducing. Royal Philips, which today focuses on healthcare, owned 18% of Philips Lighting as of late February 2018.
QEP expands Australian operations

Manufacturer and marketer, QEP has acquired the assets of PR Floors, a wholesale flooring distribution company established in Queensland in 1961. It provides a wide range of branded flooring products, tools, underlays, marine sealants and accessories. Chairman, Lewis Gould, said:
We are extremely pleased to welcome customers and associates of PR Floors to the QEP family. The addition of six locations throughout Queensland to our fifteen existing Australian Flooring Supplies (AFS) stores throughout Victoria and New South Wales creates the largest distributor of its kind with an unmatched ability to meet the needs of the professional flooring installer throughout Australia. The acquisition will add efficiency, purchasing power, operational strength and geographic reach to our AFS operation.

QEP Australia managing director, Bruce Maclaren, said:
We have enjoyed a relationship with PR Floors and its founders as long-time QEP customers. Through this addition, we are excited to have the opportunity to expand the range of products and services available to PR Floors and AFS customers.

Terms of the transaction are confidential.
Briggs & Stratton to showcase Resilient range

Briggs & Stratton will highlight its Resilient products at the Hire and Rental Industry Association's 50th anniversary convention, HIRE18.

The Vanguard 200 is a single cylinder, horizontal shaft commercial engine. It includes an advanced version of TransportGuard, Vanguard's exclusive single ignition and fuel shutoff designed to prevent oil dilution during transport.

Briggs & Stratton's Elite Petrol Generator is designed to provide users with a safe and reliable solution to get power in remote outdoor locations. The heavy-duty frame protects the generator and stands up to transport while the fuel-efficient overhead valve engine starts easily and runs smoothly to maintain power requirements.

The Ferris IS2100Z with Oil Guard is a first-of-its-kind solution for the commercial turf market. Ferris mowers with the Oil Guard System offer an increased oil capacity of 4.7 litres, allowing cooler running, longer engine life and extended service intervals.

Billy Goat's AE1300H Hydro Aerator improves hole quantity and quality due to patent pending variable aeration density (VAD[tm]), which creates 2-10 times more holes than drum models in one pass. The intuitive hydro-drive controls allow users to feather the speed and aerate in both forward and reverse with fingertip control.

The Briggs & Stratton portfolio also includes the Victa brand. HIRE18 will take place at The Brisbane Convention & Exhibition Centre on May 30-31 2018.
HNN Sources


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