Fletcher breaks exclusivity

By PAM GRAHAM

Fletcher Challenge Forests, trying to sell its 106,000ha forest estate, yesterday agreed to pay one bidder $8.5 million to break an exclusivity deal and open talks with a local consortium.

Negotiations with Kiwi Forests Group, which is offering $725 million for Fletcher's 106,000ha estate, will start today after US timber management company The Campbell Group released Fletchers from an agreement to exclusively negotiate with it.

Campbell has offered $685 million for the forests.

Fletcher's deal with Campbell featured a controversial $17 million break fee. The $8.5 million is effectively a down payment.

Campbell gets $8.5 million now and another $8.5 million if it ends up not buying the forests. If it succeeds in buying them, it refunds the initial $8.5 million payment.

Kiwi, which has another US timber management company, Prudential Timber Investments, as a partner, welcomed the latest development. It has not had any contact with Fletcher since going public with its offer.

"We appreciate that the Fletcher board has now put itself in a position to deal constructively with our offer," said Kiwi.

"We are confident that the parties will be able to quickly progress negotiations to a satisfactory conclusion."

Kiwi's New Zealand investors are Trevor Farmer, Adrian Burr, Mark Wyborn and Ross Green. Green declined to comment on whether Kiwi's $725 million offer was final. The group has not disclosed details of its financing or plans for the assets. Its offer is conditional on due diligence.

One view of the situation was that Campbell was holding at $685 million to see if Kiwi holds at $725 million through due diligence. An alternative view was that Campbell had not appeared to have moved so far so Kiwi's offer was looking good.

An issue of importance to Fletchers is securing wood supply for the processing businesses it will be left with. Norwegian company Norske Skog, which owns the Tasman paper mill in Kawerau, also gets pulp wood from Fletcher's forests.

The status of one of the most significant assets in the estate, the Tarawera forest, is also unclear. Fletcher is selling shares in a company which owns the forest and the other shareholder, Maori Investments, has a pre-emptive right to buy Fletchers out. Maori has declined to comment on whether it will exercise the right.

The sale must also get past Fletcher Forests' shareholders, the biggest of which is Rubicon with 19.9 per cent.

Fletcher aims to sell the estate by the end of the year. It argues that pension funds are more sensible owners of plantation forests and that its share price has failed to reflect the value of the underlying assets. The timber management company's clients are pension funds.