Haier maintains F&P takeover offer is fair

01:16, Oct 04 2012

The independent directors of Fisher & Paykel Appliances (FPA) have knocked back Chinese company Haier's takeover offer, recommending shareholders reject it.

Haier, which already owns about 20 per cent of FPA, has offered $1.20 a share for the remaining shares in the whiteware company.

However a statement just released by FPA says independent advisors Grant Samuel have puts the company's value at $1.28 to $1.57 per share.

Haier has hit back at the recommendation, saying Grant Samuel's claim is overly optimistic.

The FPA independent directors said Haier's offer did not adequately reflect their view of the value of the company "based on their confidence in the strategic direction of the company". FPA was in a "strong financial position" and at a relatively early stage of implementing its rebuilding strategy.

The Grant Samuel report put the value of FPA at between $926 million and $1.137 billion, equivalent to between $1.28 and $1.57 a share. That valuation included a premium for gaining full control.

It said the valuation was based on FPA's five-year strategic plan - which includes plans for 85 per cent of Fisher & Paykel Appliances' manufacturing to be done in low-cost countries, up from the current 60 per cent, and forecasts a more than 50 increase in revenues and a 40 per cent increase in sales volumes.

The "base case valuation" was $1.45 a share, Grant Samuel said.

The lower end of the valuation range reflected a 2.5 per cent per annum decline in appliances sales in its key markets, a reduction in the value of the US dollar relative to the kiwi dollar by 3 cents and a 10 per cent annual reduction in as yet uncontracted motor component sales.

The higher end of the valuation range factored in a 2.5 per cent lift per year in appliance sales, a 3 cent increase in the value of the US dollar against the kiwi and motor sales remaining at the level used in the base case evaluation.

Grant Samuel said the risks of Haier investing in FPA included foreign currency movements, its motor contracts, and competition to its motor components and global market conditions.

Benefits included synergies between the two companies, further benefits from FPA's rebuild, the potential sale of FPA Finance and the positive earnings outlook.

The advisor valued FPA Finance at between $260m to $285m.

In a statement Haier said FPA shareholders will need to "decide between the certainty of Haier's offer or taking a significant risk on the achievability of the Independent Adviser's valuation range".

Haier said the offer price was a significant 60 per cent premium to Fisher & Paykel Appliances' share price as at the close of trading on Friday 7 September, which was the last trading day before the market was advised of the potential takeover offer.

The offer was also a 91 per cent premium to the volume weighted average trading price over the three-month period up to and including Friday 7 September.

Haier said if its offer was successful, shareholders would receive a certain cash payment.

Grant Samuel placed "substantial weight" on FPA's five-year strategic plan in determining its valuation, said Liang Haishan, chairman of Haier New Zealand Investment Holding Company and president of Haier White Goods Group.

"There is a high degree of risk regarding the implementation of the five year strategic plan and achievement of the goals set out in it. In determining the offer price we have applied our significant, first-hand knowledge of Fisher & Paykel Appliances and the highly competitive global white goods sector, together with a consideration of the economic environments Fisher & Paykel Appliances operates in.

"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 per cent lower than the bottom end of the Independent Adviser's valuation range." said Mr Liang.

He said if Haier's bid was unsuccessful there was likely to be a large decline in the share price from current levels.

Liang said Haier was committed to supporting a strong and vibrant New Zealand-based business going forward, based on its history of cooperation with FPA.

Minority shareholder Tower has called Haier's offer a "steal", suggesting it could benefit to the tune of $3.31 a share if it got full control of the company.

Australian fund manager Allan Gray has a lock-up agreement to sell its nearly 18 per cent stake in the firm to the Chinese bidder.