Report favours Fletcher deal - analysts

By NZPA

Thursday 25th July 2002

Fletcher Forest shareholders and industry watchers say the latest report on its bid to buy the Central North Island Forest Partnership (CNI) assets has strengthened the case for the deal.

Shareholders this week received an independent report into the $1.3 billion deal, prepared by valuers Grant Samuel and Associates, with a promotional booklet from Forests management.

They vote next month on whether to buy the forest and allow the Chinese owned Citic, through a Hong Kong company Seawi, to buy 35 percent of Forests shares.

Tower Asset Management New Zealand equities manager Wayne Stechman said most big institutional shareholders had supported the CNI deal from the outset, and the information from Grant Samuel and the Forests board supported this opinion.

The Shareholders Association has yet to make any comment on the report and information memorandum.

Chairman Bruce Sheppard has previously opposed the deal, particularly the 37c a share paid to buy out cornerstone shareholder Rubicon.

Mr Stechman said he did not expect the Rubicon side of the transaction to have any trouble proceeding.

"I think it should proceed. As a package it is a fair deal," he said.

"I think anyone voting against it has to think there is some better alternative -- I haven't seen it and I don't believe there is one in the foreseeable future.

"If people are saying they will vote against it because Rubicon is getting a better deal than ours -- well that's cutting off your nose to spite your face."

He said that if the deal did not proceed, the price of Forests shares would go down for some time.

"I don't see myself as being any different from a small individual shareholder," he said.

Mr Stechman said the interests of small shareholders and big institutions were aligned in the CNI deal.

"Every now and again the institutions get portrayed as having some sort of different agendas than the small shareholders," he said.

"In a case like this, there is no difference, we own more shares than many of the individual investors, but the objectives will be the same.

"We all want to see some value realised from our investments and I can't see how voting against this deal achieves that."

Frances Loo, forestry analyst at UBS Warburg, said the predictions and valuations of the Grant Samuel report were broadly as expected.

"The level of debt is a concern, but you have to look at the environment that we are in.

"They haven't assumed any improvement in log prices."

The risk of a fall in log prices was much less now than it was when Forests first bought CNI in 1996 with Citic -- just before the Asian economic crisis which caused a huge drop in prices.

Ms Loo said one way Forests could have bought CNI without raising as much debt would have been to bring in Citic as a partner owning more than 35 percent of company shares, which would have raised other concerns.

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