Haier might go higher, says Shareholders Assn

Haier might increase its takeover bid for Fisher & Paykel Appliances, the New Zealand Shareholders Association says.

Fisher & Paykel Appliances Holdings' independent directors today unanimously recommended shareholders reject Haier’s takeover offer.

The Chinese whiteware giant – already a 20% shareholder and with a lock-up agreement with Australian fund manager Allan Gray for a further 17.5% stake – has offered shareholders $1.20 per share.

The association will decide in a few days whether to hold meetings for Fisher and Paykel Appliances shareholders.

“We need to see if shareholders feel the independent report and recommendations address their concerns or whether the desire for a broader forum still remains”.

Earlier, F&P chairman Keith Turner said in his letter to shareholders, as part of F&P's target company statement, independent adviser Grant Samuel's valuation range is $1.28 to $1.57 per share.

He says the independent directors consider Haier's offer "does not adequately reflect their view of the value of FPA based on their confidence in the strategic direction of the company."

F&P shares (NZX: FPA) have jumped 2.5 cents to $1.23 this afternoon.

Haier New Zealand chairman Liang Haishan says the independent valuation "is overly optimistic and does not adequately take into account the risks contained in the (target company's) five year strategic plan.

"Shareholders will need to decide whether they are willing to take the significant risk inherent in Fisher & Paykel Appliances attaining its five-year strategic plan, or accept our offer which, if successful, provides shareholders a certain cash payment and is just 6.7% lower than the bottom end of the independent adviser's valuation range."

Greg Easton, an adviser at Craigs Investment Partners, says it is early days in the takeover process.

"The market is perhaps not expecting an offer of that much more. Haier could potentially get to 50 percent with its existing $1.20 a share offer."

Last month, Tower Investments ceo Sam Stubbs called Haier's offer "a steal", while MIlford Asset Management executive director Brian Gaynor said Kiwis selling to people who were arbitraging shares made a Haier takeover of F&P more likely.

Bid 'doesn't reflect value or confidence'

In a release to the NZX this morning, Dr Turner says he, Philip Lough, Lynley Marshall and Bill Roest have considered expert advice, including an independent adviser's report prepared by Grant Samuel, in making the recommendation.

Dr Turner says the independent directors believe F&P is in a strong financial position and the independent adviser says it is at a "relatively early stage of implementation of the company’s comprehensive rebuilding strategy”.

The takeover statement says F&P managing director and ceo Stuart Broadhurst and Mr Lough do not intend to accept Haier's offer.

F&P's 2012 annual report says Mr Broadhurst, whose salary is about $800,000 a year, is the beneficial owner of 500,000 shares while almost 23,000 shares are owned by a person associated with Mr Lough.

While F&P was approached by several parties after Haier's takeover bid came to light, today's statement says none of the approaches has developed into a firm proposal.

"There are therefore currently no negotiations underway as a consequence of, in response to, or in connection with, the offer."

A schedule of major shareholders' acquisition and disposals shows Accident Compensation Corporation, which had a 7.2% stake on October 2, bought 1 million shares at $1.16 during the week of September 10 - when Haier's interest in a takeover was announced.

In the same week it sold 3 million shares for $1.1725, while the following week it sold 700,000 shares for $1.19.

Meanwhile, AMP Capital Investors - which held 5.44% on October 2 - has increased its stake, buying almost 400,000 shares for 97 cents in the week of September 10 and 200,000 shares for $1.19 a fortnight later, in a single transaction.

Offer 'not a compelling proposition'

Grant Samuel says Haier's offer implies a multiple of 10.9 times normalised earnings before interest, tax, depreciation and amortisation for 2012 and 7.1 times forecast ebitda for 2013.

The historical multiple "is below that implied by comparable transactions and below the multiples implied by the share prices of comparable listed companies," the report says.

It notes the timing of Haier's offer is consistent with FPA's progress in a range of initiatives including product development since the Chinese company acquired its holding in 2009 via a placement and rights issue.

Grant Samuel says if not for Haier's support back then, the rights issue would have been priced lower.

Haier paid $82 million, or an average 57 cents a share for its original holding.

Grant Samuel says speculation has been rife a rival offer or blocking shareholder may emerge, with talk appliances companies such as Bosch or Whirlpool could get involved.

To date, no rival of Haier has emerged with a substantial holding in the target company since the offer was unveiled, the report says.

The advisory firm says benefits and opportunities from Haier taking full control included both the appliances, and components and technology businesses generating greater cash flows than are currently forecast by management.

There will be opportunities for plant rationalisation, wider use of F&P's direct drive motors beyond washing machines and into areas such as air conditioners, and rising profits for PML, the F&P production machinery unit, in assisting Haier to upgrade its existing factories.

Such benefits will more easily be achieved if Haier owns at least 50 percent of FPA, it says.

It notes FPA is "a very small player in a market dominated by very large companies" and is "unable to refresh its product range as often as other manufacturers, in part because of resource constraints."

FPA is in the middle of a rebuilding phase, which meant Haier's offer price of $1.20 a share "is not a compelling proposition particularly given the relatively early stage of the implementation of FPA's comprehensive rebuilding strategy."

- with additional reporting from BusinessDesk