Fletcher Building Sells Tradelink to Metal Manufactures for A$170 Million
FBU (FBU) Share Update August 2024 Sunday 11th
Fletcher Building Announces Sale of Tradelink for A$170 Million
Fletcher Building Limited has announced the sale of its Australian plumbing supplies and distribution business, Tradelink, to Metal Manufactures Pty Limited for A$170 million.
Instant Summary:
- Sale of Tradelink for A$170 million.
- A$160 million cash payment on settlement date.
- A$10 million deferred cash payment based on separation milestones.
- Expected non-cash impairment of ~A$32.5 million in FY24 accounts.
- NZ$54 million non-cash loss from derecognition of Foreign Currency Translation Reserve.
Transaction Details
Fletcher Building Limited announced today that it has entered into an agreement to sell 100% of the shares in Tradelink, its Australian plumbing supplies and distribution business, to Metal Manufactures Pty Limited (MM) for A$170 million. The transaction consists of a cash payment of A$160 million, payable on the settlement date expected to occur on 30 September 2024. An additional A$10 million will be a deferred cash payment based on achieving separation milestones, which are expected to be completed by September 2026.
The sale price is on a cash and debt-free basis. After adjustments for working capital and other items, the net proceeds will be subject to transaction and stranded costs estimated at ~A$10 million, and separation costs expected to total ~A$20 million over 24 months from completion.
Financial Impact
Fletcher Building expects to record a non-cash impairment of ~A$32.5 million for the Tradelink business in its FY24 accounts. Upon completion of the transaction, the company also anticipates recognizing a NZ$54 million non-cash loss from the derecognition of the Foreign Currency Translation Reserve balance for Tradelink.
Strategic Rationale
Fletcher Building decided to divest Tradelink following a comprehensive strategic review. The review concluded that while Tradelink holds a strong position in the Australian plumbing industry, it does not align with the company's long-term strategic focus. Acting CEO Nick Traber stated that the sale will allow Fletcher Building to concentrate on the performance and growth of its core businesses.
Traber expressed satisfaction with the sale agreement, highlighting that MM is an ideal proprietor for Tradelink given their successful history in the Australian trade distribution sector. He also mentioned that the sale proceeds would be used to pay down debt.
Future Outlook
Fletcher Building will release its FY24 annual results on 21 August 2024. The company extended its gratitude to the Tradelink team, customers, and vendors for their support and professionalism throughout the process.
The sale of Tradelink is a strategic move that allows Fletcher Building to focus on its core businesses. While the non-cash impairment and loss from derecognition of the Foreign Currency Translation Reserve may impact the company's financials in the short term, the reduction of debt and streamlined operations could benefit the company in the long run. The market may view this transaction positively as it aligns with Fletcher Building's long-term strategic goals.
Investor Reaction:
Analysts are likely to view the sale as a positive step towards streamlining Fletcher Building's operations. The immediate financial impact may raise some concerns, but the long-term benefits of focusing on core businesses and reducing debt are expected to outweigh these concerns. Investor sentiment may be cautiously optimistic.
Conclusion:
Investors should monitor Fletcher Building's upcoming FY24 annual results for further details on the financial impact of the Tradelink sale. The company's strategic focus on its core businesses and debt reduction efforts are key factors to watch. Stay informed and consider the long-term implications of this transaction on your investment portfolio.