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
