Hollow victory for watchdog

By Nick Stride

Friday 5th July 2002

New Zealand Shareholders' Association chairman Bruce Sheppard's Fletcher Forests "safety net" has been described as a hollow victory and his assertion 1% of the company's shares could torpedo its Citic deal as plain wrong.

At the association's first annual meeting this week Mr Sheppard was basking in the glow of media praise for his efforts at hijacking Fletcher Forests (FFS) deal to buy the Central North Island forests in association with China's Citic.

The New Zealand Herald, portraying him as "the investors' champion," said amendments to the FFS governance deed were "being hailed as one of [the association's] greatest triumphs."

The Dominion had the association "pumped up after negotiating a trailblazing safety net for FFS' minority shareholders."

But FFS chief executive Terry McFadgen said the amendments simply fine-tuned the deed already agreed between FFS and Citic and were comfortably in accord with its spirit.

The association had asked FFS to amend the deed so that the two Citic-appointed directors on the six-seat board would have no direct contact with FFS management, and would not have a majority on the (independent directors) nomination committee, audit committee, or remuneration committee. It also wanted an undertaking Citic wouldn't vote its proposed 35% stake on the re-election of independent directors.

Mr McFadgen said it was part of FFS standard governance procedures that directors dealt with management only through the chairman or through the board process, save under exceptional circumstances. It had never been envisaged that Citic directors would dominate any of the board committees. And the original deal had been structured so that Citic had to vote in accordance with the nominations committee majority.

Institute of Directors chief executive David Newman said the amendments were a hollow victory as the Companies Act decrees directors must always act in the best interests of the company, whether other agreements exist or not.

"These sorts of arrangements are very old. This is not one I'd say has added a lot of value to Fletcher."

Mr Sheppard appeared to be overlooking the fact that, where related-party transactions were concerned, the act also states clearly what directors can or can not do.

"If there was was a significant log contract with Citic, for example, the Citic directors would certainly have to declare their interest and it would be wise for them not to vote," Mr Newman said.

FFS has set a $US7.5 million ($15.4 million) cap on the net amount (the cost of buying shares out less the cost of reselling the bought shares) it may pay to buy out minority shareholders who vote against the deal, saying if the bill went higher, the deal was off.

Mr McFadgen disagreed with Mr Sheppard's calculations that meant the deal could be torpedoed by only 1% of FFS' votes if 7% holder Xylem voted against it. He said the arithmetic could be done only when three things were known: how many votes had been cast against, what fair buyout price had been set by the arbitrator and the price at which FFS was able to place the bought-out shares back into the market.

As the basis of determination of last year's arbitration between NGC and Infratil was confidential, FFS had had to rely on Canadian law for guidance.

Comments from our readers

No comments yet