Steel & Tube share value still rising after surprise bid

Shares in Steel & Tube remained elevated yesterday following Fletcher Building's surprise $282million takeover bid earlier in the week.

Following the Fletcher bid, at $1.70 per share, the steel manufacturer and supplier's shares rose more than 20% and yesterday were trading up slightly again, at $1.59, albeit still down more than 18% on a year ago.

Neither company updated the market further yesterday and brokerages did not release any research notes on the offer.

Steel & Tube is about 18 months into a widespread restructuring, which includes $53.8million in asset writedowns and impairments for its year to June trading.

The changes include having refreshed its senior management and board, and introduced a new strategy, but for analysts it still faces numerous issues, including volatile demand, prices, margins, operating expenses and continued losses in market share.

Steel & Tube chief executive Mark Malpass said there was no board support for Fletcher's non-binding indicative offer, saying it "significantly undervalued" the company and the offer would require Commerce Commission clearance, given the size of Fletcher, which would take time.

Fletcher has had its own restructuring woes to deal with, having over two financial years reported $952million in losses on mainly fixed-price contracts, but later recapitalising to the tune of $750million.

Fletcher Building chief executive Ross Taylor described the offer as a "compelling proposal" which would deliver significant value to Steel & Tube shareholders and "materially de-risk the turnaround plan that Steel & Tube management are beginning to embark on".

Steel & Tube's revenue for the full year declined from $511.4million to $495.8million, then its board applied a total $53million in asset writedowns and impairments for the year to June.

Including the impairments, earnings before interest and tax (ebit) was a $36.2million loss and the after-tax result sank to a $32million loss, from a $20million profit the previous year.

However, at the time Steel & Tube reiterated guidance of full year 2019 ebit above $25million, and within three years to a range of $35million to $40million.

It had also noted there were no tax losses to be carried into 2019 and there was a positive impact from $81million in recent capital raising, which might see a higher after-tax profit for 2019.

Brokers First NZ Capital told BusinessDesk Fletcher Building's play for Steel & Tube was opportunistic but in line with a strategy to chase consolidation in its core New Zealand business.

According to FNZC, Steel & Tube and FBU Steel are a similar size and collectively account for more than half the country's $2billion to $2.5billion steel market.

"FBU's recent recapitalisation saw investors give it capacity for M&A again and while FBU has a reset of its own that it is progressing, we view a transaction of this type as on strategy, albeit somewhat opportunistic and with a number of hurdles to overcome," FNZC analysts Arie Dekker and Grant Lowe said in a note.

Fletcher's Mr Taylor said the merger and acquisition activity was consistent with the five-year strategy announced in June and within its focus on the New Zealand and Australian building products and distribution sectors, BusinessDesk reported.