Directors' duties caught in the spotlight after FCL's stoush

Friday 9th March 2001

RODERICK DEANE: Peak Petroleum missed the party

CRUNCHTIME: As investors voted

By Nick Stride

The war of words is over but this week's pitched battle between Fletcher Challenge and Peak Petroleum has raised a new question over directors' duties.

At the centre of the punch-up is the "non-solicitation clause" which obliged FCL to deny Peak the right to progress a bid for FCL's Energy division competing with Royal Dutch/Shell and Apache Corporation.

Emerging from the obscurity of FCL's secret agreement with Shell, the clause had outings in the High Court and the Court of Appeal before undergoing vigorous debate at Tuesday's special shareholders' meeting.

It was so controversial that the Appeal Court judges felt they needed to remind FCL directors of their fiduciary duties - somewhat unnecessarily as the Energy sale memorandum stated these overrode the clause.

The agreement bound FCL not to solicit offers or proposals for the Energy division in opposition to Shell's bid, or to facilitate any that cropped up.

FCL took that as meaning it couldn't allow Peak to do due diligence. As Peak's financial backing was conditional on due diligence being done, FCL was then able to contrast its "proposal" with Shell's firm, unconditional bid.

The issue caused High Court Justice Noel Anderson some concern last Friday when he considered Peak's request for an adjournment order. At the outset of the hearing he wondered aloud whether it would be proper for the court to make an order that obliged FCL to break its contract with Shell.

In the end he left it to shareholders and the Appeal Court did likewise.

But the issue still provided plenty of ammunition at the meeting.

GPG's Gary Weiss, shipped over from Sydney as a reinforcement, claimed Peak chairman Mark Dunphy lodged with FCL a requisition to get an adjournment resolution into voting packs on February 9, well before the cut-off date.

Mr Weiss said the requisition was accompanied by a cheque for $40,000 to cover the extra distribution costs. FCL came back, he said, with a claim the costs would be $170,000 so Mr Dunphy sent a further $130,000. The requisition never showed up.

FCL chairman Rod Deane made no comment but he did reply to a shareholder who asked why the board signed the agreement in the first place.

He said Shell and others had been invited to bid in a competitive process. The board had then compared the bids with their stand-alone model for Energy. Anyone was free to participate.

Shell's bid was judged the best so FCL signed the contract.

"We only signed after we felt we'd exhausted all other possibilities."

Alongside the verbal sparring was a statistical blitz. Peak cited huge rises in the North American price of gas and oil since the Shell deal was signed as evidence Shell was underpaying - by some $1.4 billion.

FCL countered at the meeting by hoisting charts - the Nymex natural gas and West Texas Intermediate spot contracts - showing prices had recently returned to around the level they were at when Shell made its first offer.

What's more, FCL chief executive Michael Andrews offered, Peak's 30USc premium over Shell's offer was not the advantage it seemed.

It would take at least six months to progress Peak's proposal through to settlement. The present value of 30USc in six months' time was 9USc, just 2% above Shell's price.

As another asset passed into overseas ownership the buyer at least provided New Zealand with a claim to fame. Shell spokesman Raoul Restucci, defending Shell's take-it-or-leave-it stance, claimed the deal was the most complicated his company had done anywhere in its 94-year history.

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