Energy battle goes to court

By PAULA OLIVER, energy writer

Fletcher Challenge yesterday rejected Greymouth Petroleum's plea to postpone next week's crucial shareholder meeting, saying there was no evidence the company's late bid for Fletcher Energy had firm financial backing.

The Energy division is scheduled to be sold to Royal Dutch Shell and Apache Corporation pending a shareholder vote next Tuesday.

But the Greymouth consortium, backed by Sir Ron Brierley's Guinness Peat Group, FR Partners, and Canada's Penn West, ended weeks of rumour on Tuesday when it made a late bid for Fletcher Energy.

Greymouth's proposal, in the name of Peak Petroleum, topped Shell's bid by US36c a share. It requested immediate access to Energy's books for due diligence, and asked that the upcoming shareholders' meeting be postponed.

Yesterday, Fletcher Challenge deflected the request. Chairman Roderick Deane said the Greymouth proposal was conditional on securing debt and equity finance, and undertaking due diligence.

Consequently, the board could not verify Greymouth's ability to complete the purchase.

Next Tuesday's meeting will go ahead as scheduled, and shareholders will vote to accept or decline the Shell offer.

"Normal expectations around a bid like this is that we expect it to be financially assured, and this one is not - it is conditional," Fletcher Challenge chief executive Michael Andrews told a news conference.
"It has been said that they have got secure funding, but we haven't seen that yet."

Mr Andrews said Fletcher bosses had requested Greymouth provide evidence of committed backing, and they had been unable to do so.

A normal process would see a bidder come with committed backing subject to due diligence, Mr Andrews said, but Greymouth's bid was the other way around. They would only confirm the backing after due diligence.

The Fletcher board is still deciding whether to give Greymouth access to the books.

Next Tuesday's meeting is an integral part of Fletcher Challenge's separation process, because the future of all the divisions will be voted on.

If the Shell deal is not approved, the separation of the other divisions cannot go ahead.

An analyst, who asked not to be named, said it would be a significant risk for Fletcher to pursue the Greymouth deal in its present form.

If Fletcher had postponed the meeting, Shell had the right to walk away from its offer. Shareholders could then be left empty-handed if Greymouth's proposal fell through.

Shell's offer expires on March 23. To complete the deal, the latest date the shareholder vote can be held is March 6 because of legal regulations.

"A shareholder meeting is the right and proper place for issues such as this to be aired and discussed," Dr Deane said.

ABN Amro's Nigel Scott agreed, saying it was now up to shareholders to decide if they wanted the Shell bid.
"Shell may have to revisit what they are paying after the meeting."

Mr Scott said some institutions might vote against the deal now they could see a chance to extract more value.
Market rumour suggested that the Greymouth bid was credible, and had sufficient backing.

But another analyst said he understood the Greymouth bid was heavily leveraged - possibly even doubly leveraged. He questioned its ability to front up with half the cash.

Links

Fletcher Challenge Limited

Greymouth Petroleum