Haier fires next shot over bid for F&P

CLAIRE ROGERS
Last updated 13:09 11/10/2012

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Haier has sent Fisher & Paykel Appliances investors a fresh letter to convince them to sell their shares, after independent directors of the Kiwi company recommended against it last week.

Haier, which owns 20 per cent of FPA, is offering shareholders $1.20 a share in its bid to own all, or at least half, of the company.

FPA's independent directors recommended last Thursday that shareholders reject the offer, partly on the basis of a report by independent adviser Grant Samuel that valued FPA between $1.28 to $1.57 a share.

Haier's letter sent to shareholders today criticises the Grant Samuel valuation as "overly optimistic" and too reliant on FPA's five-year strategic plan - the financial forecasts for which carried a "high degree of risk", the Chinese whiteware giant said.

The plan forecasts a more than 50 per cent increase in revenues and a 40 per cent increase in sales volumes, and includes plans to increase manufacturing in low-cost countries, and sign new contracts to supply direct drive motors and new fridge compressors.

Haier said the figure for earnings before interest and tax (ebit) for 2013 used by Grant Samuel in its valuation was between $6.2 million and $14.2m higher than more recent guidance provided by FPA's own board.

It pointed to FPA's target company statement, which Haier said cast doubt on the company achieving even its less optimistic guidance.

The statement said the trading performance of the appliance business in September was below expectations, primarily due to tougher conditions in Australia.

"FPA confirms the previous market guidance issued on 23 August 2012 ... but remains concerned about the potential for market conditions in Australia to deteriorate which would have a negative impact on near-term earnings."

Haier said FPA had failed to meet its initial profit guidance for the 2010, 2011 and 2012 financial years, and said forecasting earnings five years into the future was difficult, particularly in an uncertain economic environment.

It pointed to several risks to FPA's earnings and valuation, which had been identified by Grant Samuel. They included a 5 per cent reduction in appliances sales in Australasia - which would shave about 11c off FPA's valuation.

Haier already has a 20 per cent stake and has the support of Australian fund manager Allan Gray - the biggest single shareholder after Haier - which had agreed to sell its 17.46 per cent stake should Haier get over 50 per cent.

Responding to criticism the offer wasn't high enough, the Chinese company said its $1.20 a share offer was only 6.7 per cent below the bottom of Grant Samuel's range, was a 60 per cent premium to the closing FPA price the day before it made its offer, and a 91 per cent premium to the three-month, volume-weighted share price prior to its offer.

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In contrast, Grant Samuel's "base case" valuation of $1.45 a share was 230 per cent higher than the three-month volume-weighted average price of FPA shares before the takeover offer, Haier said.

Shareholders have until November 6 to accept the offer, or December 23 if it is extended.

Investment research firm Morningstar said in a report earlier this week that FPA shareholders should reduce their stake but retain a holding in case Haier makes a sweeter offer.

Morningstar said Grant Samuel's valuation was optimistic as it valued the appliance business at between 16.5 and 20.8 times ebit for the 2013 financial year, when the market valuation of listed appliances companies suggested the range should be between 4 and 12 times ebit, and recent appliance sector acquisitions valued those companies bought at between 10.5 and 19 times ebit.

Haier said its offer represented a 2013 ebit multiple of 12.6.

Shareholders needed to decide whether to take "significant risks inherent in FPA attaining its five-year strategic plan", or accept its certain cash payment, which was higher than FPA's pre-offer price and than what FPA's price would be if Haier's bid failed, it said. 

- BusinessDay.co.nz

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