Fletcher starts its fightback

By CHRIS DANIELS forestry writer

Fletcher Challenge Forests has hit back at maverick ex-director Stephen Hurley, a week after he began his campaign to derail its plan to buy the $1.4 billion Central North Island Forest Partnership.

Hurley is waging a public battle to convince shareholders to reject the Fletcher plan.

He says Fletcher is paying too much for the forest, taking on too much debt and effectively handing over control to the Chinese company Citic and its investment arm, Seawi.

But the company has now launched its counter-attack.

In a letter being posted to Fletcher shareholders, chairman Sir Dryden Spring tells them that Hurley - who now says the asking price of US$650 million ($1.4 billion) is too high - wanted to help buy the forest himself for the same price just five months ago.

Speaking to the Business Herald yesterday, Fletcher chief executive officer Terry McFadgen spoke of Hurley's recent support for a deal which he now says he cannot stomach.

"Shareholders need to understand this clearly when they are assessing what Mr Hurley says," said McFadgen.

"We are disappointed that Mr Hurley hasn't disclosed these matters because we think that they are very material to an assessment of his views."

While a Fletcher board member, Hurley was one of the strongest proponents of buying the partnership at US$650 million, going so far as to describe the asset as "the jewel of jewels", said McFadgen.

As well as being happy with the price, Hurley, through his company Xylem, wanted to buy it as "part of a structure which would have given him the option to increase his shareholding in Fletcher Forests quite substantially".

The Fletcher board did not agree to Hurley's plans, because he had been unable to come up with the money at that point, said McFadgen.

Hurley had wanted the company to pay the costs - at least $400,000 - he incurred while trying to get the money together.

He also wanted to be the only other party Fletcher could talk to in relation to purchasing the partnership.

This proposal was rejected by the board as "commercially unwise".

"Mr Hurley's comments and Xylem's comments about the whole transaction need to be put in context of that background and understood," said McFadgen.

At no time during a lengthy interview with the Business Herald last week did Hurley mention his one-time support for a $US650 million partnership sale price, nor does he mention it in his letter to Fletcher shareholders, where he asks them to reject the deal.

He could not be reached for comment yesterday.

McFadgen said Hurley clearly thought the deal offered to Rubicon (which has had its 17.6 per cent stake valued at 37c a share as part of the partnership deal) was inappropriate and unfair.

"He has been consistent in that," said McFadgen.

"He also appears to be saying that he thinks the arrangements with the receiver could be renegotiated."

The 163,000ha forest and its associated sawmills are being sold by receiver Michael Stiassny, who is acting for the banks that loaned Fletcher and Citic the money to buy it, before the partnership collapsed 18 months ago amid mounting debts and acrimony.

McFadgen said it was clear that neither the receiver nor the banks would settle for anything less than the $US650 million they were owed.

Unlike other receiverships, where the business was running at a loss, having the partnership in receivership was no bad thing for the banks - they were earning interest owed, plus penalty interest plus the spare cashflow coming from sales, he said.

"Because of his [Hurley's] distance from New Zealand and because of his conflict situation I don't think he understands the situation in New Zealand and I don't think he understands clearly enough that the receiver will simply not sell the asset for anything less than the senior bank debt," said McFadgen.

There were other, serious options for the receiver to look at, and others interested in buying the forest should the Fletcher bid fail.

Hurley, through his legal advisers in New Zealand, is also trying to pressure Sir Dryden into stepping down from his role of chairing the impending shareholders special meeting.

He says that Sir Dryden has a conflict of interest, caused by his role as a director of the National Bank, which is one of the banks organised to lend money to Fletcher.

Hurley - the chairman and chief executive of Xylem, Fletcher's second-biggest shareholder - is also mounting a legal challenge against Rubicon's right to vote on the special resolution approving the partnership deal. It requires 75 per cent approval.

This dispute, revolving around interpretation of Companies Office rules and Listing Rules, will be heard in the High Court at Auckland this Friday.

The Shareholders' Association has launched an advertising campaign urging Fletcher shareholders to give it their proxies to use at the special meeting, being held at Eden Park on August 13.