NZ stocks: Shareholders seem happy to chop trees

By PAUL PANCKHURST

Fletcher Challenge Forests looks set to secure shareholder approval on Friday for the sale of its forest estate, worth up to $725 million.

No signs of opposition have emerged.

The biggest shareholder, with 19.9 per cent, is Rubicon, an advocate of tree sales and capital returns.

At institutional investor AMP, equities portfolio manager Nat Vallabh said: "Shareholders will get better value by selling the forests and securing a wood supply agreement."

As an example of why the move was warranted, Vallabh pointed to last week's operating-earnings loss by the forests and supply side of the business.

One analyst said shareholders could not wait to get their money out.

"When investors talk about 'that f ... company', it's not short for Fletchers or forests."

Shareholders will meet at Eden Park to vote on selling the trees and returning capital to shareholders.

An independent report from Grant Samuel says getting out of forest ownership is in shareholders' interests.

One reason is that the forests' value is not fully reflected in the company's share price.

The High Court last year ruled that the sale required only 50 per cent approval in a vote where ordinary and preference shares have equal weight. The return of capital requires 75 per cent approval.

In theory, shareholders could approve a sale and not a return of cash, but that would be perverse.

If the deal goes ahead, shareholders will get 62.5c a share next month in the first return of capital.

One out of two ordinary shares and one out of two preference shares would be cancelled.

The company plans a second capital return of up to 57.5c a share, the amount partly depending on the sale price for the Tarawera forestry right.

Originally, the Kiwi Forests Group consortium was to buy the right for $165 million, but that part of deal fell over late last month.

Selling the trees would transform the company from mainly a tree owner to a stripped-down marketer, manufacturer and distributor.

Also on this week's business agenda - Contact Energy takes centre stage tomorrow with an annual meeting, a first-quarter result, and a function where analysts hope to learn more about its long-term outlook for sourcing gas.

Contact's 51 per cent owner, Edison Mission, has put the stake up for sale together with a wide spread of global assets.

"It would be naive to think that they would comment on the Edison situation," said ABN Amro analyst James Miller.