Fletcher - without the forests

By PAUL PANCKHURST

Fletcher Challenge Forests yesterday announced a deal to sell its 106,000ha estate for $725 million and become the forestry company with no trees.

The buyers are four New Zealand property investors - Trevor Farmer, Ross Green, Mark Wyborn, and Adrian Burr - a United States fund, Prudential Timber Investments, and the Ontario Teachers' Pension Plan.

Fletcher Forests will pay a $17 million "break fee" to a previous bidder, the Campbell Group.

The company said it planned to return up to $669 million to shareholders - or $1.20 a share - in two instalments, the first in March, the next in the second half of 2004.

That compares with the stock's closing price a day earlier of $1.33 - and broker UBS Warburg's valuation of $1.39.

The company believes the residual processing and distribution business - nicknamed "Rump Co" - is worth 30c to 40c a share.

The capital return will be boosted by Rump Co taking on $75 million to $100 million of debt, the company says.

That puts the return at the high end of expectations.

Brokers had calculated the sale price as translating into $1.02 to $1.04 a share without borrowings.

The deal will lead to an unspecified number of redundancies at Fletcher Forests.

Luke Moriarty is a Fletcher Forests director and also the chief executive of the company's cornerstone shareholder, Rubicon, which holds a 20 per cent stake.

Talking to a crowd of 350 at the forestry company's annual meeting at Eden Park yesterday, Moriarty said Rubicon would back the deal, assuming no surprises emerged - "and I don't believe there are any".

Tony Gibbs, a director of Guinness Peat Group - the corporate raider which is an activist Rubicon shareholder - was not at the meeting. However, he later said: "I'm comfortable with what's happening, so far."

Fletcher Forests' share price shot up to $1.40 on the announcement, then pulled back to close at $1.36. The preference shares were up 5c at $1.38.

A big chunk of the deal - the $165 million cutting right for the Tarawera forest - is conditional on Kiwi Forests Group, the company owned by the four New Zealand property investors, obtaining financing.

Fletcher Forests said the Tarawera estate would go back on the market if Kiwi failed to come through.

Otherwise, the sale needs only 50 per cent shareholder approval at a meeting in mid-February and the consent of the Overseas Investment Commission.

Another complication: the company needs consents, mainly from landowners, to sell the $209 million part of the estate that is not free-hold.

Fletcher Forests told the stock exchange that most of those forests were held on terms where third-party consents could not be "unreasonably withheld".

For the rest - worth about $80 million - the company expected "very few cases where consents will not be granted".

The so-called "principal transaction" - the $351 million of freehold forests - is scheduled to be settled at the end of February.

The first part of the capital return would then see shareholders get 93.75c a share if the Tarawera deal had been settled - or 62.5c a share if it had not been.

The second instalment would come after a series of monthly payments by the buyers as consent issues were settled - a process the company said could stretch on until the end of September.

The Tarawera deal is being structured so a minority owner, Maori Investments, can acquire the land, with the other minority partner, the Crown, exiting.