Fletcher Forests to offer all forests for sale

11.45am

Fletcher Challenge Forests said today that, following an outside analysis by Macquarie NZ, it is offering all its forests for sale.

"The company continues to believe that the realisable value of the forest assets is significantly in excess of the value implied by the company's share price," the company said.

The compnay will offer the forests -- some 100,000 ha -- as a trade sale, to be sold in a block to a one party or a consortium. An information memorandum is being released to selected participants this week.

Its shares traded up 3 cents to $1.03 after the announcement.

The sale of the forest estate would facilitate re-investment in the company's processing and distribution activities, and the subsequent release of substantial surplus capital to shareholders, the company said.

As part of the sale process, the Fletcher Challenge will be seeking satisfactory arrangements for wood supply and management of the forests.

The company said it expects that it will have received, in the final quarter of the 2003 calendar year, all necessary tax rulings in relation to the proposed $140 million capital return from an earlier US$65 million ($113 million) sale in January. It expects to make the capital return in December this year and is seeking a similar ruling for this latest proposed sale.

If Fletcher got an equivalent price to the January sale to UBS Timber -- some 8,940ha of forests realising $120 million -- today's proposed sale should be worth more than $1 billion.

Most of the forest for sale is on freehold rather than leased land.

In January, Fletcher Forests said the UBS sale valued the forests at the equivalent of about $1.85 per Fletcher share.

Including the sale to UBS, Fletcher Forests will be left with only around 20 per cent of the assets it previously held.

However, joint chief executive John Dell told NZPA that the rump of the company was the profitable part.

"It is the part of the company that is making a very high return and it is making that return on a very small asset base.

"In terms of earnings and cashflow generation, the other (processing and distribution) businesses are very strong businesses."

Both the processing and distribution businesses were earning their cost of capital.

"At least in this point in the cycle, continued forest ownership certainly isn't earning its cost of capital, which is why we want to release that capital and redeploy it into these other businesses and then return capital to shareholders," Mr Dell said.

He said Fletcher Forests was eyeing "quite attractive opportunities" in the distribution and processing businesses.

The company was looking at both organic growth and aquisitions, but was not considering any greenfields (new) expansion.

Mr Dell said the company was certainly looking for a sale in excess of the current share price. He noted that since the UBS transaction, the New Zealand dollar has risen significantly against the US dollar. That suggests the price may not be as high as in January.

"The company believes these specialist timberlands will put a higher value on our estate than what the sharemarket currently does."

The sale is expected to be completed by the end of this year.

Shares in biotechnolodgy company, Rubicon, which owns 19.9 per cent of Fletcher Forests, rose 3 cents to 71 cents.

- NZPA