Fletcher Building shares rocket 12% following a deal on leaky pipes issue

Fletcher Building Ltd (ASX: FBU) shares shot 12% higher to an intraday peak of $2.94 on Friday.

This followed news of a major agreement to deal with plumbing failures caused by one of its products.

Fletcher Building shares were placed in a trading halt at the request of the company this morning.

The company wanted the share price frozen while it waited for the Western Australian Government to announce whether it would accept the company's proposed joint industry response (JIR) on the issue.

The JIR lays out remedies for homeowners experiencing leaks caused by a product made by Iplex Australia. Iplex Pipelines Australia is a subsidiary of Fletcher Building.

Fletcher Building developed the JIR in partnership with the government and several builders.

The WA Government has today advised it will accept the JIR in-principle. In its response to this development, Fletcher Building issued a statement and the stock resumed trading.

Fletcher Building shares are currently trading for $2.89, up 9.7%.

Let's look into the details of the JIR.

Fletcher Building shares fly on news of JIR green light

If the JIR is finalised, Fletcher Building said it expects to record a pre-tax provision of about $155 million in its FY25 accounts.

The JIR will be made available to the owners of all Western Australian homes in which Pro-Fit pipe manufactured with Typlex resin was installed, whether they are the original owners of the property or not.

If the builders of those homes participate in the JIR, they will be the point of contact for impacted homeowners. They will make repairs and fix any other damage caused.

They will also undertake other work, such as replacing ceiling pipes, when necessary.

Iplex will cover 80% of the builders' costs, and the WA Government will cover 20%.

Fletcher Building said the JIR was "the most pragmatic solution for affected homeowners" and a product recall was not appropriate.

The company said most builders of affected homes participated in the mediation to develop the JIR. All but BGC have agreed to participate in the JIR.

BGC built approximately 50% to 60% of the affected homes. It has already filed a legal claim against Iplex seeking damages. Fletcher Building says BGC will not be eligible to participate in the JIR unless it drops its lawsuit. According to the statement, the companies will continue discussions.

The WA Government will extend the timeframe for homeowners to lodge complaints from six years post-completion to 15 years.

What did management say?

Acting Fletcher Building CEO Nick Traber said:

As we have said for some time, it is in all parties' interests, as a first priority, to stand up a comprehensive response which remediates the plumbing issues in a timely and pragmatic way.

Our work to date has shown that a rapid response to initial leaks, installing leak detectors and replacing ceiling pipes in homes that have suffered a plumbing failure is the most effective and homeowner-friendly way to mitigate future issues.

We therefore see the Joint Industry Response as a sensible and practical outcome for all parties.

Fletcher Building noted it had previously told the market of a class action suit brought against Iplex.

The suit has been brought on behalf of all affected homeowners nationwide. It alleges the pipe was not of acceptable quality at the time of supply and seeks damages.

Fletcher Buiding shares snapshot

Fletcher Building shares have fallen 35.4% in the year to date, while the S&P/ASX 200 Index (ASX: XJO) has lifted 5.9%.

The post Fletcher Building shares rocket 12% following a deal on leaky pipes issue appeared first on The Motley Fool Australia.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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