Fletcher Forests confirms sale of forest estate for $725m

Fletcher Challenge Forests (FCF) confirmed today it would sell its 106,000ha forest estate to a consortium led by Kiwi Forests Group for $725 million.

FCF chairman Sir Dryden Spring said the price agreed was significantly above that offered by other bidders and represented a 50 per cent premium on the share market valuation of the company's assets.

FCF shares rose 5 cents, or 3.8 per cent, to $1.38 on the news.

The purchasing consortium, which will pay cash, includes Kiwi Forests Group, Viking Global New Zealand Ltd and a New Zealand subsidiary of The Ontario Teachers' Pension Plan.

There is still doubt about a significant portion of the forests estate being sold with the sale of the Tarawera forestry right conditional on financing arrangements being completed by Kiwi Forests.

The sale of a forest cutting right for the Tarawera forest for $165 million to Kiwi Forests (included in the $725 million sale) is conditional on Kiwi Forests obtaining that financing.

If the Tarawera sale proceeds, and Kiwi says it is confident about financing, then FCF will pay shareholders a capital return of $1.20 per share in two stages.

There would be an initial payment of 93.75 cents, reducing to 62.5 cents per existing share if the Tarawera forestry sale is not completed, and the second payment in the second half of 2004.

FCF estimates the rump of its business, mainly wood processing, is worth 30-40 cents per share based on earnings forecasts.

The deal will also have to pass a shareholder vote. The major shareholders of FCF's largest shareholder, Rubicon with 19.9 per cent, are at loggerheads. Guinness Peat Group and US fund Perry Corp have been slugging it out in the courts of the legitimacy of how Perry acquired its holding.

FCF is holding its annual shareholder meeting today.

Kiwi Forests, formed for the acquisition, is owned by four wealthy New Zealand businessmen: Trevor Farmer, Ross Green, Mark Wyborn and Adrian Burr. They have previously worked together on a range of projects including the 1996 acquisition of waterfront land from Ports of Auckland and the subsequent development of that land into Auckland's Viaduct Basin.

The Ontario Teachers' Pension Plan is one of Canada's largest financial institutions, with assets of over C$68 billion ($80 billion). It invests to secure the retirement income of over 330,000 active and retired teachers in the province of Ontario and has global infrastructure and timberland assets of C$1.9 billion.

Viking Global New Zealand is owned by a Boston-based fund, Prudential Timber Investment Inc, which is not affiliated with Prudential of the United Kingdom.

FCF will have to pay a $17 million "break fee" to United States timber management company The Campbell Group for releasing it from an agreement to exclusively negotiate with it.

Campbell had offered $685 million for the forests.

FCF said satisfactory wood supply agreements had been agreed. Norwegian company Norske Skog, which owns the Tasman paper mill in Kawerau, also gets pulp wood from Fletcher's forests.

The sale is due to be completed by the end of February 2004.

Sir Dryden called the sale "an excellent outcome".

He said it was a complex deal because of the different types of ownership of the land.

A year ago the company announced it was quitting forest ownership to concentrate on high margin processing and Sir Dryden said the deal was a major step towards implementing its strategy.

If Kiwi is unable to buy Tarawera, then the forest would immediately be re-marketed.

A special FCF shareholder meeting will be held in February to approve the deal. A high court ruling has determined a simple majority is all that is required to pass the deal.

FCF said that the purchasers would employ some FCF staff, others would be reassigned but there would be an unspecified number of redundancies.

The company is attempting to get a ruling from Inland Revenue deeming that the capital return is not a taxable dividend but the ruling has been delayed pending finalisation of the deal.

FCF shares closed yesterday at $1.33 and were bid at $1.40 on the Reuters screen before the market opened.

FCF announced at the shareholder meeting it expected a $20 million net profit for the June 2004 year before abnormals. In September, it reported a $271 million loss for the June 2003 year due to a devaluation of its forests by $292 million. Its pre-unusual operating earnings were $81 million.

"Overall, for our processing and distribution businesses, we still expect a result for the full year which is line with guidance provided to the market in September, that is NPAT (net profit after tax) of slightly more than $20 million prior to unusual items," Chief Executive John Dell told shareholders at the annual meeting.

By 10.30am, FCF shares were up up 7 cents, or 5.25 per cent, to $1.40.

Rubicon shares were up 2 cents at 81 cents and GPG was unchanged on $1.84.

- NZPA