Divisions saleable in own right: report

By PAULA OLIVER

Fletcher Building and Forests will be more attractive takeover targets as standalone businesses, says an independent report into the separation.

Grant Samuel and Associates' reports into the options for Fletcher's Energy, Building and Forests divisions are included in a mailout to the company's 65,000 shareholders that began this week.

Included in the information packages are booklets that will help shareholders to decide which way to vote at Fletcher Challenge's separation approval meeting on March 6.

Should they agree with chairman Roderick Deane and his board, Fletcher Forests and Fletcher Building will become standalone businesses, making them tidier prospects for potential buyers to snap up.

"As an independent listed company, the prospects of receiving a takeover offer will be significantly greater than under the current structure," says the report into Forests.

Both divisions were effectively put up for sale last year when Fletcher Challenge revealed it planned to dismantle the group, but while offers were received, none was good enough.

The share prices of both divisions seem to have suffered from investor animosity towards the complicated letter stock structure, the report says.

But establishing the companies as separate businesses also carries risks.

Forests would no longer have the support it had previously enjoyed from other divisions, and, as a smaller company, the cost of its borrowing would increase.

Building would also have less support, but that could work in its favour in terms of allowing it to compete aggressively for work without having to consider the consequences for other Fletcher businesses that may be suppliers.

Both divisions will carry a cost burden on the group's restructuring - Forests being hit for $35 million, and Building $45 million.

In a letter to shareholders, Forests chief executive Terry McFadgen describes the division's performance as unsatisfactory. Cost-cutting aimed at saving $15 million a year is about to begin, with an emphasis on the corporate and support services areas.

While the company's cashflow over the last three years has not been strong, the independent report into Forests indicates that could begin to turn around next year.

New company Rubicon, the victim of criticism by many brokers, is also reviewed in the shareholder mailout. Should the sale of Fletcher Energy to Royal Dutch Shell be approved by shareholders, Energy shareholders will receive one Rubicon share for each Energy share they hold.

Rubicon is intended to be a technology-based company that offers commercial opportunities to groups such as universities, crown research institutes and other research groups.

It will house a chunk of Fletcher Forests shares, the Challenge petrol station network, and Forests' biotechnology and South American assets.

Among the risks detailed in Rubicon's independent report is the fact that it could be subject to early selling pressure from Energy shareholders who do not want the shares.

As a mid-sized company with investments in a wide range of businesses and industries, it may take time for investors to warm to the stock.

In their investment statement, Rubicon chiefs say they do not expect to pay regular dividends.