Analyst's report backs CNIF deal

By CHRIS DANIELS

Duelling financial analysts are being wheeled out by rival interests in the battle for the Central North Island Forest Partnership, with the latest report urging Fletcher shareholders to support the deal.

Fletcher Challenge Forests has launched a public relations and advertising campaign to convince shareholders to support its plan to buy the $1.4 billion forest and take on the Chinese company Citic as a 35 per cent shareholder.

A report by investment bankers ABN Amro this week opposed the forest purchase.

But public relations firm Hill and Knowlton, which has been working for Fletcher Forests to promote the CNIF deal, yesterday circulated an analyst's report from Macquarie Research Equities advising shareholders to support the deal.

The ABN Amro report was circulated by those against the deal, such as the Shareholders' Association and representatives of renegade Fletcher director Stephen Hurley.

Macquarie's report is the first to speculate on the reasons behind the involvement of corporate raider Guinness Peat Group (GPG), which entered the fray this week when director Tony Gibbs said he would vote against buying the CNIF.

In a night-time raid last month, GPG bought 19.9 per cent of Rubicon, which owns 17.6 per cent of Fletcher.

GPG has since announced that it has bought a small number of Fletcher shares (under 5 per cent), which it intends to use to vote against the CNIF deal at next Tuesday's special shareholders meeting in Auckland.

"So what is GPG up to?" asks the Macquarie report. "Well, the first point to make is that GPG's raison d'etre is to make money for its shareholders, not FFS [Fletcher Forests] minorities. It is possible that the two sets of interests coincide, but it probably isn't wise to bank on it, and time frames for objectives may also differ. And we think this is key to the opportunity for GPG."

It goes on to say that a significant number of Fletcher shareholders had a shorter-term focus than GPG.

"The original plan probably saw GPG as the most influential shareholder in RBC [Rubicon], which either remained as the most influential shareholder in FFS or realised the value of that stake pretty quickly and returned it to shareholders."

The move by US Fund Perry Capital into Rubicon, where it bought 16 per cent of the company just a week after GPG, had complicated matters.

If the CNIF proposal is rejected next week by Fletcher shareholders, Macquarie thinks GPG will then move to increase its stake in Fletcher when its shares will be cheap.

Fletcher shareholders had a "much clearer path for maximising value and capitalising on Asian economic growth" by approving the CNIF deal.

As Asian growth continued, Fletcher would be a sound investment, said Macquarie, "especially if you are the pivotal shareholder and an increasing number of potential suitors emerge, as they most likely would".

Legal action in the High Court at Auckland tomorrow may put a spanner in the works for Fletcher, when Stephen Hurley's Xylem tries to bar Rubicon from voting at next week's special shareholders meeting.

The Stock Exchange's market surveillance panel yesterday issued a decision on a number of complaints and queries it had received recently surrounding the CNIF deal.

Fletcher chairman Sir Dryden Spring's position on the board of the National Bank has been raised as a potential conflict of interest, because the bank is involved in lending money to Fletcher to buy the CNIF.

The panel said it acknowledged Fletcher's right to appoint Sir Dryden as chairman of the shareholders meeting for all but the part of the meeting where the resolutions would be put to shareholders.