Fletcher to sell forests for $685 million

By NZPA

Monday 15th September 2003

Fletcher Challenge Forests (FCF) today confirmed it intended to sell its entire forest estate to United States company The Campbell Group for $685 million.

The sale price was well below the forest's book value of $728 million, including $181 million of land, and The Campbell Group has yet to complete due diligence.

Fletcher said the proposed sale included all of its forest land, crop, associated assets and working capital.

The Portland, Oregon-based Campbell Group has signed a letter of intent with FCF, with a targeted sale completion date in December this year.

If the sale went ahead, FCF was planning a capital return of about $1 a share, totalling about $558 million and including $140 million confirmed earlier this year.

FCF chairman Sir Dryden Spring said the difference between the $685 million offer and the book value prices was "slightly different".

"...the difference reflects the price for the early realisation of value for shareholders, compared with an on-going "in use" value to be realised over time," Sir Dryden said in a statement.

He said the proposal confirmed FCF's belief that there were investors who placed its forest value "well above the value implied by the historical share price".

FCF has agreed to negotiate the sale of its forest estate with only The Campbell Group until December.

"Recognising the commitment that has been made by The Campbell Group, the company (FCF) has agreed to... certain non-completion payments if the transaction does not proceed or is not approved by the company's shareholders," FCF said.

FCF would also have to pay The Campbell Group if it subsequently entered into sale discussions with another party before December.

"The letter of intent does not create a contractual commitment on either party to complete a transaction," FCF said.

It was hoped a sale and purchase agreement could be reached by late October.

However, any sale would need approval by the Overseas Investment Commission, as well as FCF's shareholders.

As part of the approval process, an independent adviser's report on the proposal would be sent to shareholders.

It was likely some of FCF's staff would be offered jobs with The Campbell Group, but there would also be redundancies, FCF said in a statement.

FCF's forestry operations provide jobs for about 150 people.

Meanwhile, after the capital return, FCF's marketing, manufacturing and distribution businesses were expected to have no net debt before funding new investment.

If the sale went ahead it would ease the redirection of the business to focus on the high value marketing, distribution and processing activities.

FCF would then change its name.

The Campbell Group manages more than 323,912ha in the Pacific Northwest, and is the second-largest forest-land investment management organisation in the United States.

FCF's asset backing after the return of capital will be about 42 cents per existing share, totalling $234 million, it said.

On Friday, FCF announced a $271 million full-year loss after slashing the value of its forests by $292 million after tax.

Like all forestry companies, FCF has taken a hit from a rise in the New Zealand dollar, low prices in markets and high freight rates.

On top of common industry problems, FCF has lost a multi-million dollar management contract for the neighbouring Central North Island Forest Partnership (CNIFP) forest estate and is trying to cut head office costs by $13 million a year.

At 4.30pm, FCF shares were up eight cents at $1.23. It has 185 million shares on issue with market capitalisation of $228.7 million.

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