Fletcher locked in for $17m

By PAUL PANCKHURST

Fletcher Challenge Forests could face a $17 million penalty payment to the United States buyer of its forestry estate if it merely talks to a rival bidder.

The forestry giant yesterday revealed the break fee payable to The Campbell Group, of Oregon, if Fletcher enters discussions with another party and Campbell then decides to walk.

On Monday, Fletcher Forests announced a non-binding letter of intent to sell the 106,000ha forestry estate to Campbell for $685 million.

On Tuesday, a consortium led by high-flyers Ross Green, Trevor Farmer, Adrian Burr and Mark Wyborn announced a rival bid of $550 million in cash plus $200 million of shares in an enlarged version of listed forestry investment company Evergreen Forest.

The break fee is larger than Tuesday's market speculation of $10 million, which presumably confused New Zealand and US dollars.

Sources close to the rival Kiwi Forests Group claimed to be shocked by the size of the fee - and questioned the New Zealand precedents, especially when the agreement was only a letter of intent.

In a stock exchange disclosure, Fletcher Forests also revealed penalty payments to Campbell of $8.5 million if shareholders failed to approve the deal and $4.25 million if the deal was not completed by December 31.

A clearer picture started to emerge yesterday of why Fletcher Forests picked the Campbell bid.

Kiwi Forests Group is believed to have originally made a cash-and-share bid of close to $700 million, which was in the same ballpark as Campbell.

It was only after Fletcher did the deal with Campbell that Kiwi Forests whacked up the bid to the $750 million faxed to Fletcher on Tuesday.

Fletcher said it would take up to 10 days to evaluate the new bid.

The key information yet to be publicly disclosed on the alternative is the exact nature of the $200 million share component of the deal.

The Kiwi Forests bid would see large portions of the estate flicked on to a global forest management company, Prudential Timber Investments, and to Evergreen Forests.

Many sharebrokers and investment bankers view the bid as a long-shot, largely because of the share component.

Shareholders' Association chairman Bruce Sheppard waded in yesterday, telling Fletcher Forests that his group would probably urge shareholders to block the US deal.