McFadgen defends insider trading claims

By NZPA

Thursday 16th January 2003

Fletcher Forests chief executive Terry McFadgen said today he is keen to resolve any issues of possible insider trading in the company.

"What we want to see is the air cleared on this," he told National Radio.

Suspicions were aroused when three major broking houses began aggressively buying the stock -- sending the share price up by almost 9 percent -- on Tuesday, a day before Fletcher Forests announced a major cutting rights deal and a $NZ140 million capital repayment.

The Securities Commission has launched a probe into the trading and the Stock Exchange will conduct a separate investigation into whether Fletcher Forests' complied with the exchange's disclosure rules.

Mr McFadgen said the share price spike caused a few raised eyebrows within the company, but no evidence of insider trading had emerged so far.

"There is no suggestion whatsoever at this stage that any of our staff or processes need to be investigated," he said.

"We couldn't find on the Tuesday any evidence that there had been any incidents of insider trading."

He admitted, however, that in a large transaction like this, information could slip through the cracks.

"In a transaction of this sort there are two parties, there are many consultants involved..."

The Securities Commission investigation is one of the first since the watchdog's powers were expanded by a law change in December.

The commission can now bring civil prosecutions for insider trading. Penalties can include forfeiture of any profit made -- or loss avoided -- plus a penalty of up to three times the profit made or loss avoided.

The latest investigation is the third involving former Fletcher Challenge spin-off Forests in recent years.

Under yesterday's deal Fletcher Forests will make its first step away from forest ownership, selling 8940ha of mature trees for $US65 million ($NZ120 million) and making a capital repayment to shareholders of 25c a share.

In separate transactions, Fletcher will get $US45 million from US forestry investment manager UBS Timber Investors for 6400ha of its Tahorakuri forest in the Central North Island and another $US20 million for 2540ha of trees in its adjoining Tauhara forest.

The sales account for 8.2 percent of Fletcher's forest estate of 108,500ha.

Shares in the company surged a further 10c on the news yesterday, finishing the day at $NZ1.18 each.

The return of $NZ140 million, equivalent to 25c a share, is coming through a "capital reduction", or pro rata cancellation of shares, which shareholders will have to approve at a special meeting, due by May this year.

Details of the reduction, including the ratio of shares to be cancelled and the amount paid for each share, will be given closer to the meeting.

The company is hoping the payment will be non-taxable.

The money Fletcher earns from the deal comes from the sale of cutting rights, not the land on which the trees stand.

Fletcher will manage the trees on behalf of UBS, also providing "ancillary infrastructure services such as roading".

UBS can harvest designated trees, at maturity, over the next 13 years. As part of the deal Fletcher has the option of buying half of the crop, when harvested, at market prices.

UBS will sell the rest of the trees on the open market, meaning Fletcher could end up buying more than the 50 percent it has options on.

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