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Fletcher Building Limited shares rocket on Wesfarmers Ltd takeover talk

One of the best performers in morning trade has been the Fletcher Building Limited (ASX: FBU) share price.

At the time of writing the struggling New Zealand-based construction and industrial materials company’s shares are up a massive 14% to $6.32.

Why are Fletcher Building’s shares rocketing higher?

Investors have been fighting to get hold of Fletcher Building’s shares after the Sydney Morning Herald reported that Wesfarmers Ltd (ASX: WES) could be interested in acquiring the company.

According to the report, sources have told the news outlet that Wesfarmers may have recently bought a 3% to 4% stake in the company.

While Wesfarmers has declined to comment on the matter, Fletcher Building has responded by stating that: “We are not aware of a shareholding in the name of Wesfarmers in Fletcher Building.”

But as Wesfarmers can buy shares on an anonymous basis through a nominee entity until its stake reaches 5%, Fletcher Building would be none the wiser to such a move.

Is a deal imminent?

Wesfarmers is believed to be on the lookout for acquisition targets after announcing plans to demerge its Coles business.

When announcing the demerger management stated that:

“A demerger of Coles will facilitate greater focus by Wesfarmers on growth opportunities within its remaining businesses and the pursuit of value accretive transactions. The capacity to act opportunistically will be retained through a strong balance sheet and a cash generative portfolio.”

With Fletcher Building’s shares down 33% from their 52-week high after a difficult 12 months, it certainly would fit into Wesfarmers’ strategy of acquiring business with turnaround potential.

What now?

I would caution investors against buying shares in Fletcher Building purely on this speculation. After all, should a deal not materialise then its share price could reverse these gains and tumble sharply.

So for now, I would suggest investors keep their powder dry and watch on for further developments.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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