FCL dismantling cost investors but paid well for many others

Friday 16th March 2001

PAPER WARS: Shareholders received 1100 pages each on the proposals and many individual lawyers and firms did well out of the separation process

By Nicholas Bryant

Fletcher Challenge's now defunct letter stocks cost about $1 million to set up and $250 million to separate.

The money was spent on legal, merchant banking and communications fees, as well as payment of external indebtedness to Fletcher Challenge in the process of dismantling the four divisions from the letter stock structure.

In the case of the Forests and Building divisions the money came out of the pockets of shareholders.

The indebtedness relates to attribution of debt to the divisions under the letter stock structure, debt which has become real and - apart from Fletcher Paper aside - must be repaid over the next two weeks.

After that time new debt arrangements will be taken up on behalf of the two remaining pieces of the empire, Fletcher Building and Fletcher Challenge Forests.

Other costs for dismantling Fletcher Challenge were paid by Norske Skog when it bought Fletcher Paper and will be paid by Shell when it settles its purchase of Fletcher Energy.

Norske Skog paid about $116 million for helping to dismantle the debt-ridden Fletcher Paper, while Shell will pay about $47.5 million for separation and debt related to Fletcher Energy.

An $80 million bill, $35 million for Forests and $45 million for Building, was made up of legal fees, corporate advice, investor relations, mountains of printing and other miscellaneous costs.

The $80 million figure includes the payment of external indebtedness to the Fletcher Challenge parent company.

Fletcher Challenge spokeswoman Ginny Radford said it would be difficult to differentiate between debt repayment and the myriad costs attributable to separation.

"A lot of the costs relate to restructuring debt and refinancing - for example, the Forests preference share issue and the costs related to it were part of that [$80 million] number," Ms Radford said.

Many individual lawyers and firms did well out of the separation process, with Fletcher Challenge's lawyers, Bell Gully, getting the bulk of the work.

Finance houses in receipt of big cheques for performing a merchant banking role were Credit Suisse First Boston (Forests), Morgan Stanley (Energy) and Merrill Lynch (Building).

FCL's paper attack cost 'about $7m'

Every FCL shareholder received 1100 pages of proposals, information memorandums and reports on the letter stock sale. The cost: an estimated $7 million.

Public relations sources estimated an average Fletcher Challenge division annual report would cost $400,000 - covering writing, design and printing.

Then there was the cost of sending documents out. By FCL's own figures that costs about $170,000 - the cost it quoted to Peak Petroleum for sending out a new meeting agenda.

In relation to the letter stock separation Fletcher Challenge produced 10 separate publications which ran to about 1100 pages.

Their probable cost to produce and send out is estimated at about $7 million.

But outside PR firms did not get their hands on the lucrative work. FCL's own divisional communications teams handled initial work, while contracted individuals were brought in to handle the separation issues which were communicated to all divisional shareholders.

- Nicholas Bryant

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