'Fair deal' battle looms over Fletcher Forests

By CHRIS DANIELS and NZPA

The Shareholders Association is promising to fight for a "fair and reasonable" return for Fletcher Forests' minority shareholders by taking legal action if the Central North Island Forest Partnership deal proceeds.

Association chairman Bruce Sheppard said yesterday that the transaction had all the hallmarks of an unfair deal.

One partner, Rubicon, would get out of Forests at a high price - 37c a share - and the rest would be stuck with a partner they knew nothing about.



"In order for shareholders to get out with a fair price we are advising shareholders to vote no," Sheppard said.

"Then we would serve notice on the company that we are co-ordinating a class action minority buyback."

That would group minority shareholders in legal action to seek at least the same amount for their shares as Rubicon is to get.

Fletcher company secretary Paul Gillard said the minority buyback provisions in corporate law could not properly be described as a "class action" or even legal action.

They were a Companies Act mechanism that allowed shareholders who voted against the special resolutions to be bought out.

They would have to vote against the deal, then, within 10 working days, apply to the company to be bought out. They could not set a price for their shares.

The board of the company could then agree to buy the shares.

If it did, it would nominate what it considered was a fair price.

It could also go to court to ask for an exemption from the rules.

If the shareholder disagreed with the price, an arbitrator was appointed to decide what was a reasonable price.



"In no sense are we going to in any way oppose - nor can we oppose - minority shareholders' right to exercise their minority buyout option, if they want to," Gillard said.

Sheppard said that if he were on the Fletcher board, he would be wondering how the company could pay for a minority buyback and, against that, whether it would be better to solicit a full takeover from another party.

The maximum payout Fletcher Forests faces under such provisions, assuming a rare combination of circumstances and a 37c buyback price, is about $250 million.

Fletcher Forests conditionally agreed on Monday to buy the Central North Island Forest Partnership's assets from receivers Ferrier Hodgson for US$650 million ($1.35 billion).

In a complex deal, which requires shareholder approval, Chinese Government-owned Citic, through Hong Kong-listed firm South East Asia Wood Industries (Seawi), will put US$200 million ($411 million) into Forests through a share placement that would give Seawi a 35 per cent stake.

Seawi has been subject to a large number of stock exchange queries into exceptional price movements since it listed in Hong Kong in September 1997.

In 1999, the Hong Kong Securities and Futures Commission successfully prosecuted a Seawi vice-president.

"To vote yes for this deal, shareholders would have to be pretty silly," Sheppard said.

"A yes vote would see shareholders having to trust an unholy threesome of a previous marriage partner and a Hong Kong company with a chequered past."

Fund manager Xylem, which owns 7.6 per cent of Fletcher Forests, has said it will oppose the deal, which it says is "not fair and reasonable" for minority shareholders.

Shares in Forests closed down 1c at 24c yesterday.

The first successful use of the minority buyback provisions of the Companies Act occurred in July last year, when Infratil won an extra $10 million from NGC after its $830 million purchase of the 75.8 per cent controlling interest in TransAlta NZ.

Having voted against the takeover, Infratil was entitled under the minority buyback provisions to force NGC to buy back its shareholding, which then stood at 6.7 per cent.

NGC assessed fair value at $1.30 a share and paid Infratil $34.6 million for 26.6 million shares.

An arbitrator later decided the fair value was $1.68 a share, and NGC had to pay Infratil the difference.