Kiwi tops rival by $40m

By PAUL PANCKHURST

The late bidder for Fletcher Challenge Forests' 106,000ha forest estate, Kiwi Forests Group, yesterday slapped $725 million in cash on the table - topping its rival by $40 million.

The revised offer raises questions over why Fletcher became locked in to an exclusive bid from The Campbell Group of the United States.

Kiwi's new bid is $23 million higher than Campbell's if a $17 million break fee is factored in.

In a statement, Fletcher Forests said it expected to announce a decision on the new bid within two weeks.

Kiwi assumes the fortnight is for Campbell to come back with a higher bid.

"Clearly it doesn't take two weeks to subtract 685 from 725, does it?" said Ross Green, the Auckland property investor who is fronting Kiwi's bid.

On the topic of the contentious break fee, Green said: "I hope the Fletcher board is engaged in considering how to either remove or at least minimise the cost of that fee."

Rickey Ward, of institutional investor New Zealand Guardian Trust, told Bloomberg the new offer was "an awful lot better" and: "If Campbell is serious then [it should] raise its bid and do due diligence.

"One would hope that Campbell would make a move sooner rather than later."

The revamped bid is lower than Kiwi's previous $750 million cash-and-shares offer but eliminates the Achilles heel: the $200 million of shares in listed New Zealand forestry investor Evergreen Forests.

Evergreen is no longer part of the bid but, according to Kiwi, could end up managing much of the estate.

Green said Prudential Timber Investments, a global forest investment manager, would take roughly half the estate, including areas of leasehold land.

Kiwi believes its bid is more likely to secure Overseas Investment Commission approval.

Investment bank Macquarie ran the process that led to Fletcher Forests nine days ago signing a letter of intent to sell to Campbell for $685 million, with a $17 million fee due if Fletcher talks to another bidder and Campbell walks away.

Kiwi's enthusiasm begs the question why the sales process did not get a better price.

Market speculation is of a communication breakdown between Macquarie and Kiwi's adviser, First NZ Capital, during the push and shove of negotiation.

Fletcher company secretary Paul Gillard said both Macquarie and another adviser, Cameron & Co, had viewed the $17 million fee - 2.5 per cent of the sale price - as appropriate in the circumstances and consistent with international practice.

However, Auckland commercial litigation firm Wilson Harle said it was exploring options for legal action over the fees at the request of a Fletcher Forests shareholder.

A partner, Chris Browne, said one possibility was a derivative action, with the shareholder filing proceedings in the name of the company and alleging directors breached their duties by agreeing to the terms of the letter of intent.

A first step would be "pre-commencement discovery" to establish the terms and circumstances of the deal.