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Why the divorce between Sims Metal Management Ltd (ASX:SGM) and Fletcher Building Limited (ASX:FBU) can benefit both

After 25 years, Sims Metal Management Ltd (ASX: SGM) and Fletcher Building Limited (ASX: FBU) will no longer be partners in the Sims Pacific Metals joint venture.

On Friday morning, the two companies announced that Sims will acquire Fletcher’s 50% stake in the JV for a cash consideration of NZ$42 million (about $39 million) excluding working capital adjustments, which will be finalised after the acquisition.

These are currently estimated in a range of between $13 million and $18 million. Sims expects the transaction to be EPS accretive in FY19.

Pacific Metals is New Zealand’s largest metal recycling company, operating nine sites across the country and handling about 350,000 tonnes of materials annually.

The transaction fits perfectly with the opposite strategies of the two companies. Sims is pursuing growth through complementary acquisitions in its core market, while Fletcher – after the failure of its Building + Interiors business – is undertaking a major restructure that entails the divestment of non-core activities. The New Zealand-based construction group will refocus its steel division on manufacturing and distribution.

At the time of writing, Sims is down 0.4% to $16.28, and Fletcher is down 0.5% to $6.44.

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Motley Fool contributor Tommaso Autorino has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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