Fletcher's bid falls at finish

By CHRIS DANIELS

The convoluted sales process of the Central North Island Forest Partnership entered a dramatic new phase yesterday, as Fletcher Challenge Forests withdrew its bid for the $1.5 billion asset.

Ferrier Hodgson's Michael Stiassny has been trying to sell the forest and associated sawmills for more than a year, after the joint venture between Fletcher and Chinese company Citic collapsed amid acrimony and a mountain of debt.

Late on Tuesday Fletcher asked for an extension to a deadline imposed by Stiassny, but this was refused, forcing it to withdraw its bid.

The news prompted a surge in trading of Fletcher shares, with 12 million ordinary and 4.5 million preference shares changing hands yesterday. The share price finished the day down at 23c.

Fletcher announced on March 28 that it had won the exclusive right to put together a deal within five weeks.

But with that falling apart, the receiver's "back-up plan" has swung into action, meaning Waikato brothers Peter and Philip Vela will be asked to put in a bid for the forests.

The Velas have made millions in the fishing and bloodstock industries, but currently own only a small number of forestry assets.

Fletcher chief executive Terry McFadgen said the bid was withdrawn after a deadline imposed by the receiver could not be met.

"We got slowed down by some organisation changes and that's the sort of thing that happens in life."

These organisation changes occurred within Fletcher's as-yet-unnamed partner in the deal.

"It was really a matter of the receiver taking that action. We were unable to meet a deadline ... and the receiver found himself in a position where because of a backup agreement he couldn't give us more time."



He said a deadline extension was requested, but not granted.

He confirmed that the enterprise value of the assets of the Central North Island Forest Partnership had been agreed at around the bank debt level of about $1.5 billion, but negotiations with the unnamed third party had struck a hitch.

Auckland lawyer Clive Bradbury, director of the Velas' bid vehicle CNI Forests, said this month that the partnership's assets would be a good strategic fit with the Velas' existing bloodstock, farming and forestry investments.

He made no comment yesterday, but has indicated the company will talk about the implications of the Fletcher withdrawal tomorrow.

Forestry analyst at CS First Boston Andrew Mortimer said there had been some scepticism in the market of the Velas' ability to put together a deal to buy the partnership, but the receiver was obviously taking them seriously.

UBS Warburg analyst Frances Loo said it was a surprise to hear of the Fletcher deal falling over.

"Although they hadn't given us a huge amount of the details, I was of the view that they wouldn't have agreed to the five-week exclusive timetable unless they felt it was an achievable one."

Loo said one should not assume that Fletcher was now out of the running for the partnership.

"We have a situation where there's a back-up offer, but there has been no suggestion that it's an unconditional offer."

Fletcher would be likely to keep talking to the receiver, to speak to the Velas and continue to firm up their own bid.

"They are not totally out of the running. In fact presumably they are pretty close to getting something firmed up. It's just they were unable to get things done this week."

Bradbury said while it was possible that other forestry investors could be approached to invest in the partnership, at this stage it was purely the Velas and their interests putting together any bid.

"The company would remain under New Zealand control with the Velas at the helm," he said.

"They are not standing in for anyone else. They are looking at this as a long-term investment, not a short-term hold."

Any sale of the forest has implications for New Zealand's forestry giant Carter Holt Harvey, which held its annual shareholders meeting in Wellington yesterday.

Carter Holt chief executive Chris Liddell said that while Fletcher's pulling out of the deal meant nothing directly to the company, he was disappointed to hear the news.

"It's important for the industry that it gets sorted out.

"There's been a hiatus of at least a year and that creates uncertainties and makes it hard to plan for the future."

Liddell said a successful sale of the partnership would create a benchmark and could lead to a positive revaluation of Carter Holt forests.

He declined to put a dollar figure on any potential revaluation of those forests.