Interest in giant forest deal focuses on Rubicon

By CHRIS DANIELS

Fletcher Challenge Forests shareholders will vote on the future of the huge Central North Island Forest deal by mid-August.

The proposal to buy the $1.3 billion forest, with the associated entry of the Chinese Government's Citic investment company, is now being digested by the financial community, with most interest focusing on a side deal for Rubicon.

As a minority shareholder, Rubicon has had its 17.8 per cent stake in Fletcher valued at 37c a share, well above yesterday's close of 25c.

A variety of resolutions will be put to Fletcher shareholders at a special meeting in August, two of which need 75 per cent approval.

The size of the deal is so large that the Companies Act requires approval by special resolution.

The first resolution is likely to relate to the actual purchase of the Central North Island Forest Partnership assets, with another special resolution to amend the Fletcher constitution, bringing in two new directors from South East Asian Wood Industries (SEAWI) of Hong Kong.

Fletcher shareholders will also vote on a raft of other ordinary resolutions requiring only 50 per cent approval.

Rubicon cannot vote on any of the ordinary resolutions because it is a related party, with two directors on the board of Fletcher.

One resolution will be to approve the cancellation of Rubicon shares and selling it the Tahorakuri Forest.

The issuing of the $413 million in new shares to SEAWI needs the approval of only a simple majority of Fletcher shareholders.

Rubicon shareholders will be sent an independent appraisal in about six weeks.

They will then be asked to approve the plan for selling their Fletcher stake in exchange for $48 million cash from SEAWI and the 11,874ha of forest at Tahorakuri.

UBS Warburg forestry analyst Frances Loo said the forestry deal was not a fait accompli but she thought it would probably be approved.

The most controversial part would be the sale of the forest to Rubicon, but shareholders did have to consider that it was mostly getting trees, not cash, for its stake.

"Our preliminary assessment has been that we think it probably is something that will on balance add value overall."

This value might not necessarily be related to the value of the Central North Island Forest transaction, but to the loss to Fletcher should it fail.

Documentation about to be sent to shareholders would be important, said Loo, as it would contain pro forma financial information about the state of Fletcher.

Business Herald columnist Brian Gaynor predicts that the special treatment of Rubicon and doubts about SEAWI may cause problems in convincing shareholders to approve the deal.

Another problem facing Fletcher is the resignation of director Stephen Hurley, who represented US forestry investor Xylem.

A public relations company working for Fletcher yesterday released what it said was the "actual text of the relevant section of an email from Hurley to Fletcher chairman Sir Dryden Spring.

"As the issue will obviously be canvassed for some time it is important you have the exact words as follows:

"This is to advise you that I am intending to resign as a director of Fletcher Challenge Forests Limited prior to the commencement of Saturday's board of directors meeting.

"I intend to resign because Xylem is opposed to the transaction, which is not fair and reasonable to the minority shareholders of Fletcher Challenge Forests Limited."

Attempts to contact Hurley yesterday were unsuccessful.