Fisher & Paykel Appliances Ltd. (F&P) said that it will buy the finance and credit card business of Farmers Group Ltd., the operator of New Zealand's only nationwide department store chain, in a move that will expand the appliance maker's consumer finance arm.
A consortium of F&P Appliances and privately owned James Pascoe Ltd., which owns jewelry chain Pascoes, will pay NZ$311 million to Australia's Foodland Associated Ltd. for Farmers.
F&P Appliances will own and operate the finance unit, for which it paid NZ$188.7 million, while James Pascoe will operate the department store chain.
"This acquisition provides us with the opportunity to merge our existing Fisher & Paykel Finance business with Farmers Finance to form a leading retail consumer finance company in New Zealand," said Alastair Macfarlane, managing director of F&P's finance unit. "Significant benefits from synergies, increased efficiencies, and new initiatives involving the Farmers Card will result from this acquisition over the medium-to-long term."
Farmers Finance has a consumer loan book of around NZ$300 million, which contributes annualized earnings before interest, tax, depreciation, and amortization of between NZ$24 million and NZ$28 million, or three times pretax earnings of F&P's finance business.
"Farmers finance operations have always been well regarded and quite substantial, so Fisher & Paykel are getting into something in which they already have experience," said Barry Lindsay, research director at First NZ Capital. "It's an opportunity to grow Fisher & Paykel's finance business...so it's a substantial expansion for that side of the F&P business," he added.
The appliance producer made net profit of NZ$73.5 million in its last financial year ended March 31, mostly generated by the core appliance business.
F&P Appliances said it will finance the acquisition through debt and expects the acquisition to be earnings per share neutral after funding costs and goodwill amortization during the first year.
Mr. Lindsay said the market would be relieved that F&P Appliances didn't buy the department stores because that would have distracted the company from its core business.
Some market watchers had been concerned that F&P Appliances would purchase the retail business to prevent another appliance producer from buying the stores and shutting out F&P's products. (Dow Jones)
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