WELLINGTON, New Zealand - Building materials maker Fletcher Building Ltd.will buy Cincinnati-based surfacing products manufacturer Formica Corp. for $700 million.

The current owners, private equity groups Cerberus Capital Management LP and Oaktree Capital Management LLC, brought the company out of bankruptcy three years ago.

"Formica provides Fletcher Building with the opportunity to establish a truly global laminates platform and significantly increase the geographic diversity of our earnings exposure," said Jonathan Ling, New Zealand's Fletcher Building chief executive.

Formica, which has more than 3,800 employees in 14 manufacturing and 33 distribution facilities across Asia, Europe and North America, said Wednesday it doesn't expect the ownership change to have a major effect on daily operations and will add growth opportunities.

"Our goal has been to establish an ownership structure that will allow us to build upon our success and continue to invest in and grow the business, and our people," Frank Riddick, Formica's president and CEO, said in a statement. "Fletcher is ideally aligned with this objective due to its broad-based building material and construction business and experience in the laminate and decorative surface market."

Formica will become a business unit within the Fletcher Building Laminates & Panels division, and Riddick will retain his current titles, said Formica, whose roots date to 1912.

Fletcher Building will fund the purchase of Formica using existing and new bank debt facilities and an underwritten placement of 26 million ordinary shares, expected to raise some $218 million, it said in a statement Wednesday.

Formica's Asian manufacturing units will allow Fletcher Building to source low-cost products for use in Australia and New Zealand and will provide a platform to distribute in Asian growth markets, Ling said.

The acquisition should add to earnings in its 2008 financial year, as analysts noted Fletcher continued a strategy of growth through acquisition. The acquisition is Fletcher Building's largest since it bought Amatek Holdings in 2005 for $423 million and spent about $727 million in total on laminates business Laminex and building products maker Tasman Building Products in 2002.

Laminex already trades and owns the Formica brand in Australia and New Zealand.

"I think the market will take the move quite positively, particularly going into the American market," said Hamilton Hindin Greene adviser Grant Williamson. He said there is potential in the U.S. for good growth.Shares in Fletcher Building closed down 1.6 percent to $12.65 New Zealand($9.20) Tuesday, ahead of the announcement and shares were put on a trading hold to complete a proposed share placement.

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On the Net:

http://www.fletcherbuilding.com

http://www.formica.com

Publication date: 2007-05-23

© 2007, YellowBrix, Inc.