Fletcher Construction, one of the largest listed companies in New Zealand, is understood to be up for sale following a profit warning and a slump in its share price.
The Auckland-based company announced in March that its full-year profit would be about $70m (NZ$100m) less than expected.
This led to a 21% fall in the company’s share price, effectively reducing its listed value by about $1bn.
It prompted speculation in the Australian press that the company would become the latest Anzac contractor to be taken over.
Shares this morning were 27% down on the year so far, and their lowest for almost a year.
Fletcher’s troubles stem from problems with some large and complex construction projects coupled with a rapid rise in labour costs.Â
Fletcher shares began dropping in late February, when its construction division unexpectedly posted weak first half earnings, a slide that steepened after the profit warning.
Rumours of an impending sale appeared in the Australian Financial Review (AFR) yesterday. The paper’s Street Talk column reported that three Australian investment banks were competing to organise a sale.
AFR suggested that the price tag for the entire company could be around $6bn, although it is also possible that Fletcher could spin off its low margin construction division.
Rickey Ward, NZ equity manager at JB Were in Auckland, told the New Zealand Herald that the construction division had become a headache for the company, generating just 10% of earnings on 20% of the revenue.
He said: "It’s a division in the company that’s low margin, but important to win contracts, but it’s the one blight on what is not a bad underlying business."
Image: One of Fletcher’s projects is the US$560m Rebuild Christchurch residential scheme (Rebuild Christchurch)