To those who are wondering why FFS has jumped up today
the following article in the NZ Herald explains why. It seems the long
awaited sale is imminent.
GPT
(holds shares in FFS)
Chinese whispers on Fletcher Forests
sale
13.07.2000 - By GEOFF SENESCALL
Fletcher Forests is understood to have resolved differences with the
Chinese Government-owned Citic, paving the way for a quick sale of the $1
billion Fletcher offshoot.
Sources close to Citic say settlement with Fletcher Forests over the
disputed management contract of the Central North Island Forests
Partnership is in sight.
Citic had taken court action in December last year to try to have
Fletcher Forests' management contract terminated.
Its claim centred on allegations that Fletcher Forests was getting
cheap logs from the partnership.
In the 1999 fiscal year some $50 million worth of logs were sold by the
partnership to Fletcher sawmills.
Fletcher Challenge declined to comment yesterday on the Citic
situation.
However, at last week's Fletcher special shareholders meeting the
group's chief executive, Michael Andrews, indicated that he was confident
of a resolution.
The dispute with Citic has clouded the sale of Fletcher Forests, which
was put on the block back in March. It also put in jeopardy the sale of
Fletcher Paper to Norway's Norske Skog. Fletcher Forests was forced to
guarantee the supply arrangements between the partnership and the paper
division.
Once an agreement with Citic is signed a sale of Fletcher Forests is
expected to happen quickly, leaving the divestment of Fletcher Energy and
Fletcher Building to complete the breakup of one of New Zealand's largest
companies.
The prospect of an imminent deal with Citic saw the Forests share price
rally 5c yesterday to 87c. Helping push the price was speculation that the
the company had received a bid of more than 120c a share.
At least three parties are believed to have had a close look at the
asset.
They are thought to be the US forestry investor Weyerhaeuser in
conjunction with UBS Brinson, Boston-based company John Hancock Life
Insurance (which several months ago spent more than $US150 million on
Australian farmland to increase its investment portfolio) and
Seattle-based Plum Creek Timber, one of the world's largest private
plantation owners.
Weyerhaeuser is believed to have a close relationship with Citic.
It is unclear whether Citic's deal with Fletcher Forests includes the
waiving of its pre-emptive rights over the 165,000ha forestry block in the
central North Island should ownership change.
But there was speculation in the market yesterday that Citic might be
angling to buy Fletcher Forests out of the partnership, which has annual
sales of around $500 million.
Citic, with Brierley Investments and Fletcher Challenge, bought the
former Government-owned Forestry Corporation forests in the central North
Island in September 1996 for $1.6 billion, net of debt.
Two years later, Brierley used an exit clause in its contract, leading
to Citic and Fletcher investing a further $US126 million into the venture
to cover its losses.
Should Fletcher Forests fail to find a buyer, its shareholders face
some sort of capital raising to address its debt-laden balance sheet.
Fletcher Forests has consolidated debt of around $1.1 billion. It has a
market capitalisation of around $740
million
See IRG research reports
