Dollar threatens Shell bid

By PAULA OLIVER

The rising New Zealand dollar is stripping value off Royal Dutch Shell's bid for Fletcher Energy, and beginning to cast doubt over March's shareholder approval vote for the deal.

The $4.3 billion sale of Fletcher Energy, struck in US dollars in October, was originally hailed as good for shareholders because it was worth $11.22 a share. But brokers spoken to by the Business Herald yesterday said that the offer was now worth only about $9.50 a share.

In addition to the strengthening kiwi, the value is also affected by the volatile share price of US-listed small turbine maker Capstone Turbine, in which Fletcher Energy has a 10 per cent stake.

Some brokers said that if the dollar spikes, as some analysts have predicted, Fletcher Energy's institutional investors could even be tempted to hold on to their shares.

"The deal could not have been announced at a worse time, with the dollar at a low point and Capstone at a high point," one analyst said. "Usually a price only improves from the day of announcement, but in this situation it has been the opposite."

Because the Shell/Apache offer was struck in US dollars, every time the kiwi rises 1c against the greenback, the deal loses 22c a share in value, an analyst estimated. Since sitting at 40.42USc when the deal was announced in October, the kiwi has climbed as high as 42.79c.

Brokers said one analyst predicted it would spike as high as 53c, a worst-case scenario for the deal, taking $2.20 a share off its value.

"If that happened before the vote, which is unlikely, the value knocked off would surely see investors rethinking their situation," said an analyst.

Complicating the issue is the Capstone share price, which is susceptible to the ever-changing Nasdaq landscape. The Nasdaq had its worst monthly fall in November since 1987, down by 23 per cent. Capstone's price sat at $US43 in October, but has since plunged as low as $US18.50. It picked up yesterday to end the day at $US31.

The Capstone price tends to move in $US5 amounts, which adds or subtracts 25c a share from the value of Shell's offer.

Brokers said the volatility of the Nasdaq and the kiwi were crucial to shareholders, and in particular the institutions which held large parcels, accepting the deal. And the deal itself was absolutely crucial to the entire Fletcher Challenge separation process.

But most of them agreed that the Royal Dutch Shell and Apache offer was by far the best in town - meaning shareholders ultimately had little option but to approve it.

"There are jitters over the tech market in the US and our dollar, but I would say it's extremely unlikely the deal would be voted down," said one analyst. "But a lot can happen between now and March, and I guess a vote is never guaranteed."

Some brokers said that the murky situation had led Fletcher Challenge to enlist a market research company to contact brokers to get a feel for how they were advising their clients.

But Fletcher Challenge spokeswoman Ginny Radford said the market research was "nothing sinister." It was designed to find out how much understanding shareholders had of the separation process.

"It is a hugely complex deal, and we are limited in the information we can give to shareholders," she said. "We are simply trying to determine how effective that information has been, and get the formal communication for the next stage as good as we can get it."

Ms Radford said some brokers had contacted Fletcher Challenge because they were not sure about certain parts of the deal. The likelihood of a shareholder understanding it had to be smaller.

She said that the deal was always going to be partially affected by the New Zealand dollar and Fletcher Challenge was not concerned.