Super Fund bid for Evergreen favoured

Evergreen Forests' largest shareholder has thrown its support behind a $112 million bid by the New Zealand Superannuation Fund to buy the forestry company's assets.

Ohio Public Employees Retirement System, the US-based fund with a 40.6 per cent stake in the forest company, said it would vote in favour of the fund's unsolicited back-up bid.

On September 26, Evergreen Forests shareholders will first consider a $104.2 million bid by James Fielding Funds Management, an Australian investment fund. Ohio has recommended shareholders vote down the Fielding offer. The Fielding bid needs 75 per cent approval from Evergreen's shareholders, mainly large American and Danish superannuation funds, to proceed.

Shareholders also have the option to retain Evergreen's assets.

Peter Mertz, chief executive of Global Forest Partners, the firm that advised Ohio to approve the Super Fund offer, said the best option for shareholders was to sell their stake in the heavily leveraged firm as its future was highly uncertain.

The price offered by the Super Fund - a 14 per cent premium on a net share basis to the Fielding bid - came as a result of a "robust and competitive sale process that exposed these forests to interest from global investors", said Mertz. Up to 20 parties are said to have been interested.

As of June 30, Evergreen forest and land assets were worth $134.1 million. Were Evergreen shareholders to vote down the two offers, they would have to start a $20 million rights offering to begin paying the company's nearly $70 million in debt.

Shareholders would have to commit additional capital, at least 13c a share, or suffer significant dilution.

First listed on the NSX in 1993, Evergreen Forests essentially expanded at the expense of its balance sheet. In a reverse takeover, it bought CBS Forests, headed by Mark Bogle, who took control of Evergreen. The firm continued to expand, snapping up more forest parcels with borrowed money, hoping for timber prices to pick up. They didn't. The strong Kiwi dollar and high freight rates also hit the industry hard.

Mertz argues, however, that forestry is still a solid long-term investment when put in the proper hands.

"For most successful investors that has meant no gearing or only modest leverage," he said.

The Super Fund bid for Evergreen's North Island forest and land, its South Island Pakawau and Pupu forests. The James Fielding bid is only for the North Island assets.

Evergreen shares were steady yesterday at 32c.