Between the lines: Nostalgia can't override reality

The name Fletcher has been synonymous with New Zealand's corporate history over the years.

It has built our houses, developed our forestry industry and given us energy.

So it is with a tinge of sadness that the Fletcher Challenge conglomerate is now being dismantled, facilitated by yesterday's shareholder vote to sell its paper division to Norway's Norske Skog.

Capturing the sense of loss of this historic company at the packed meeting was the veteran shareholder rights campaigner Max Gunn.

He recounted a story from the mid-1930s when, as a 20-year-old, he met James Fletcher (now Sir James) on a boat trip to Sydney.

According to Mr Gunn, Mr Fletcher painted an "inspiring picture of forestry and its ancillary businesses as a long-term means of overcoming New Zealand's crippling currency problem.

"What a betrayal of that vision and of an industry built up in postwar years by Sir James," he said.

"If the sale is approved another segment of our industrial heritage will be delivered into foreign ownership ..."

Mr Gunn went on to list a range of businesses which have been sold to foreigners such as Telecom, our banks, insurance companies and newspapers.

He said 250c a share was far less than the intrinsic worth of shares.

"We are being tempted by the 83 per cent premium over the pitiful share price over the last 12 months.

"Don't forget it will be a cheap buy for the Norwegians with their strong krona.

"We will be paid out in our utterly depressed currency."

While Mr Gunn's stirring comments struck a cord with shareholders, they voted unanimously in favour of selling.

And well they might.

In an emotional sense this is a sad day but in an economic sense it is good riddance.

Over the past decade Fletcher Challenge has been an unmitigated disaster.

In the past two years alone New York-based financial consultant Stern Stewart estimates Fletcher has lost more than $2 billion of shareholder value.

This is measured by taking the after-tax operating profit and deducting the risk-adjusted cost of capital.

Over the past 10 years it is estimated Fletcher, mainly because of its paper and forestry divisions, has lost $8 billion.

This is a phenomenal destruction of wealth when put into context of the capitalisation of our sharemarket being just $48 billion.

Even Brierley Investments, whose poor track record is well documented, looks relatively good by comparison. It has lost $4.5 billion in the same period.

So while there might be some nostalgia surrounding the unravelling of Fletcher Challenge, there is certainly economic logic to the firm's action.

Mr Gunn did, however, offer a solution.

That was to introduce capable New Zealand management and sack some of the board members.

However, it might be a bit too late for that.