GPG puts cat amid Fletcher pigeons

By CHRIS DANIELS

Fletcher Forests' ambitions to buy the $1.4 billion Central North Island Forest Partnership suffered a blow yesterday, as corporate raider Guinness Peat Group confirmed it would try to scupper the deal.

GPG is now emerging as a key player in the saga of the Central North Island Forest (CNIF), and has a growing potential to derail the purchase through its shareholdings in both Fletcher Forests and Rubicon.

GPG director Tony Gibbs announced yesterday that the investment company was now a small shareholder in Fletcher Forests and would vote against the CNIF deal at next week's special shareholders meeting.

Although GPG owns less than 5 per cent of Fletcher, it also owns 19.9 per cent of Rubicon, and will vote against Rubicon going ahead with its part of the forest deal.

Rubicon owns 17.8 per cent of Fletcher Forests and is using the CNIF deal to get out of the company.

It is the first time Gibbs has said which way GPG will vote. He would not be drawn on the exact reasons for his stance, other than to say he does not believe the forests proposal "is in the best interests of the Fletcher Forest shareholders".

If Fletcher shareholders decide to endorse the CNIF deal next week, then Rubicon shareholders will vote on whether to sell its stake in Fletcher, in exchange for the Tahorakuri Forest and $48 million in cash from Hong Kong company Seawi.

Seawi is the investment vehicle of Chinese-owned Citic, and will become a 35 per cent cornerstone shareholder of Fletcher.

The whole deal will collapse if Rubicon does not approve its part of the transaction and the 163,000 hectare forest, now in receivership, will remain unsold.

Gibbs said Rubicon was better off in its current position of owning part of Fletcher Forests than selling the shares in return for a forest.

Rubicon has been accused of getting a sweetheart deal from the purchase by selling its Fletcher stake at 37c a share while the market price is about 25c.

Fletcher, in an attempt to shore up support for its CNIF plan, is now taking out advertisements in newspapers and on the internet in an attempt to encourage all shareholders to vote on the deal.

Yesterday it published a letter it has sent to the New Zealand Shareholders Association, which has been campaigning against the deal.

In the letter, chief executive Terry McFadgen assures shareholders that Seawi will not undermine Fletcher's independence.

He also defends the company's right to use the undirected proxy votes of US-based holders of Fletcher American depositary receipts, or ADRs.

These ADR holders account for 7 per cent of Fletcher, and if they do not respond to the posted voting forms, the company secretary will vote the ADRs however he likes.

Secretary Paul Gillard said he would "vote in the best interests of the company" but would not be drawn on which way that would be.

Shareholders Association chairman Bruce Sheppard said it was unethical for Fletcher management to use the ADRs to support the CNIF deal.

It meant that management of the company was voting as if it were a shareholder, which went against all concepts of sound corporate governance.

"It is the shareholders who vote on the board's strategy," said. "If the board devises that strategy, then gets to vote on it, there is no check or balance.

"The act of doing it is an act of gross dereliction of integrity."

A report by investment bankers ABN Amro on the CNIF deal has added to Fletcher's woes, as it gives support to claims from renegade ex-director Stephen Hurley that buying the forest is a risky move.

"If our logic is correct, it is difficult to justify the purchase price of US$650 million on cost-benefit grounds," says ABN Amro.

"The purchase would overstretch the balance sheet of FFS [Fletcher], providing limited headroom in the event of a swing in market conditions.

"The difficulty faced by the receivers in selling CNIFP and the feedback we have been getting suggests that FFS may have overpaid for the asset."

ABN Amro said it was "less than enthusiastic about the deal".

" We are not disputing the strategic value of CNIFP assets to FFS. We are concerned that the expected benefits are not as significant as we previously thought while the risks are understated.

"Moreover, we think FFS may have paid too much for CNIFP assets, although the company strongly disagrees that this is the case."

Fletcher hit back at the ABN Amro report, saying it was inaccurate and inappropriately used "short- term financial outcomes to determine the value of long-term assets such as forests".

The analysis of the company's ability to repay debt was also flawed, said Fletcher chief financial officer John Dell.

Rubicon chairman Michael Andrews, announcing yesterday the special shareholders' meeting to be held on August 27, said shareholders would soon be sent a report on the transaction, prepared by Deloitte Corporate Finance.

He said the report viewed the CNIF deal as a good one for Rubicon shareholders.

Independent valuers Grant Samuel and Associates have also endorsed the CNIF deal.