Shares jump as Fletcher offers forests

By PAUL PANCKHURST AND NZPA

Fletcher Challenge Forests is a big step closer to becoming the forestry company with no trees after yesterday putting its entire 106,000ha forest estate - book value $1.2 billion - up for grabs.

The company aims to complete a trade sale and hand a big chunk of the cash to shareholders before year's end.

Fletcher Forests' ordinary shares jumped 10c to $1.10 on the news, preference shares 9c to $1.09, and shares in 19.9 per cent shareholder Rubicon 5c to 73c.

Company secretary Paul Gillard said most of the money would go to shareholders and some reinvested in the stripped-down company.

Fletcher Forests would be left with what it says is the money-spinner - the processing, distributing and marketing operation - in a fulfilment of the strategy flagged at last November's annual meeting.

The company believes its share price has failed to take account of the true value of the estate.

An information memorandum goes to potential buyers this week from investment bank Macquarie.

Gillard said the company intended to roll together, in a single capital repayment to shareholders, cash from the sale of the estate and the $140 million already due from the sale of 8940ha of mature trees in January.

An analyst of the stock, who did not want to be named, said the sales drive was "a good development" that would have been better a year earlier, before currency moves and a weakening of wood prices.

He said a shareholder-enriching blockbuster sale was not a sure thing in a world that had "plenty of forests for sale". A notable local example is the 165,000ha estate of the Central North Island Forestry Partnership, where a "for sale" sign is a permanent fixture.

Gillard countered: "What someone is willing to pay will depend on their long-term view of the world market."

The usual suspects from overseas - Hancock, UBS Timber Investors and Grantham Mayo - are named as potential buyers.

Gillard said: "There is interest in our estate - otherwise, we wouldn't have issued the information memorandum."

The forests for sale are in a zone stretching from southeast of Lake Taupo to the Bay of Plenty, the biggest tracts including Tarawera and Matahina, both near Kawerau, and Ngatapa, east of Taupo.

Only 4 per cent of the estate is not radiata pine.

Unlike the January sale to UBS Timber of cutting rights, what is up for grabs is, for most of the estate, both the trees and the land beneath them. Gillard said about 70 per cent of the estate was freehold.

The UBS sale was at 85 per cent of book value.

On the same basis, the estate would be worth about $1 billion.

However, the UBS sale was of mature trees, while the estate was a mix of maturities and qualities.

Will Fletcher Forests have to chop the "Forests" out its name?

"It's an interesting question. We'd have to look at the brand," said Gillard.

Analysts believe the stock is worth $1.60 to $1.65 if the estate is sold at full value.

Fletcher Forests has done a complete about-turn from a year ago when it was trying to buy the Central North Island Forestry Partnership for $1.3 billion.

That deal would have taken the company's forestry holding to around 275,000ha but was thwarted by the likes of Guinness Peat Group.

If it sells the estate, Fletcher Forests will be left with just 20 per cent of the assets it had at the start of this year but joint chief executive John Dell described the rump as the profitable part.

"It is the part of the company that is making a very high return and it is making that return on a very small asset base."

Both the processing and distribution businesses earned their cost of capital, while the forests did not.

Top NZ forest owners

1. Carter Holt Harvey 315,000ha

2. Central N Island Forest 165,000ha

3. UBS Timber Investors* 115,000ha

4. Fletcher Forests 106,000ha

5. Rayonier 100,000ha

6. Weyerhauser 62,000ha

7. Juken Nissho 54,000ha

8. Ernslaw One 53,000ha

9. Crown Forestry 53,000ha

10. Pan Pac Forest Products 31,000ha

Total forest area 1,799,000ha

*Manages forest on behalf of pension fund investors.



Source: NZFOA