Shell's purchase of Challenge will be complex exercise

Shell says it will need to purchase Fletcher Challenge Energy through a court-approved arrangement, if it gains Commerce Commission clearance.

As negotiated so far, Shell would form a new company to acquire certain shares in Fletcher Challenge as part of a court-approved arrangement under the Companies Act.

That procedure is required because of the "peculiarities of Fletcher Challenge's targeted shares structure."

Shell would then acquire Fletcher Energy in exchange for the new company plus a payment sufficient to clear the group debt apportioned to the energy division.

The Dutch-owned company has not finally determined exactly which Fletcher Energy assets will form part of its bid.

The financial value for Shell in the deal lies in its being able to apply its technical expertise to the exploration and production assets.

It does not want to include the Challenge retail petrol chain or Fletcher Energy's 14.2 per cent stake in NZ Refining in the bid, if that can be avoided.

But if Fletcher Challenge decides it wants a clean bid, the divestments outlined in the application will be made within 12 months.

Shell said it was hoping Challenge would be sold before the deal went ahead.

No mention is made in the application of Fletcher Energy's 11 per cent stake in the US-based Capstone Turbine Corporation.

That has fuelled speculation that Fletcher Challenge may separate this out and divide it among its existing shareholders.

Fletcher Challenge has been far less bullish than Shell about the status of the sale.

It says that only decisions on its remaining three divisions, building, energy and forestry, will be made by year's end.