Fletcher merger cost $90m

By Mark Reynolds

It will cost close to $90 million to merge Fletcher Paper and Fletcher Canada, say documents detailing the proposal.

The costs of the merger have been assessed at $C68 million ($89 million) in an information memorandum and prospectus that has been prepared for release to shareholders in the companies next week.

A copy of the documents obtained by the Business Herald shows the enormous costs of the merger mainly comprise financial advisers' fees, filing fees, legal and accounting costs and solicitors' fees.

In addition will be the huge mailing and printing costs for the 400-page documents that have to be sent to the 100,000 shareholders in the companies.

The Fletcher Challenge Group had previously announced the proposal for Fletcher Canada to take over the Southern Hemisphere paper operations owned by Fletcher Paper.

If the merger goes ahead - and that is far from certain - Fletcher Canada will be the largest producer of newsprint and uncoated paper in the Pacific Rim.

It would be the world's seventh largest producer of newsprint and groundwood speciality papers used for documents like phone books.

The company would have total annual newsprint and groundwood paper capacity of 2.28 million tonnes, along with 1.1 million tonnes of pulp and containerboard capacity, the documents show.

But the merged company would have had earnings per share of just 1Cc in its financial year to the end of June, the memorandum reveals. Fletcher Canada's earnings per share for that period were 23Cc while Fletcher Paper had a loss of 3.8NZc for the period.

Whether the merger goes ahead will be dependent on shareholder votes scheduled for early November.

The plan has already been keenly opposed. Fletcher Canada minority shareholders say the offer, which values Fletcher Paper at 184c a share is too generous. Fletcher Paper shares closed at 135c yesterday.

Investment bank Macquarie has nevertheless concluded in the shareholder documents that the offer is "fair and reasonable" to the shareholders of Fletcher Paper.

Its assessment is based on valuations prepared by the Fletcher Group and scrutinised by accounting firm Deloittes.

If the arrangement is completed, Fletcher Paper shareholders will own 45 to 50 per cent of Fletcher Canada.

If it does not go ahead, the Fletcher companies might have to pay non-completion fees of $C10 million.