Point of no return for letter stocks

By PAULA OLIVER and GEOFF SENESCALL

BUILDING


Aggressive alterations will be the feature of Fletcher Building's early days as a standalone business, with indications yesterday that the company will focus on local activities and sell its South American assets.

The diverse Building division is to become a standalone publicly listed company, after its heavy mix of construction, steel, building products, concrete and housing businesses proved a stumbling block for a sale.

Establishing Building as a standalone business will result in:

A move from "under-performing" and non-core assets. Fletcher Challenge chairman Dr Rod Deane indicated that the company would sell its interests in Peru and Bolivia. A venture in India will also be sold.

A new chief executive. Former Fletcher Paper chief Alexander Toldte takes over the role vacated by Terry McFadgen, who will head Forests. Mr Toldte's experience includes the forest industry, building materials and the automotive and energy industries.

A refocusing of the business with a clear emphasis on New Zealand building. An aggressive efficiency programme will look at how to improve existing assets.

Extension of research and development into composite building materials, and further exploration of e-commerce opportunities.

A dividend payout of 8c a share on November 9.

ENERGY


Fletcher Energy is to be sold to Royal Dutch Shell and US-based energy company Apache Corporation in a deal worth $4.6 billion.

The bid, which values Energy's shares at $11.22, is still subject to approvals from both the Commerce Commission and the Overseas Investment Commission.

As part of the transaction, shareholders will receive:

Cash of $US3.34 - currently equivalent to $8.30 - for each Fletcher Energy share, from the sale of oil and gas assets to Shell and Apache.

An entitlement to one Capstone Turbines share for every 70 Energy shares. This equates to $1.72 for each Energy share, and accounts for around 5 million of the 8 million Capstone shares Energy owns.

One share in a newly formed company called Rubicon, valued at $1.20, for every Energy share.

The $11.22 price is a 43 per cent premium on the $7.85 at which Energy shares were trading before the announcement.

The pro rata distribution of Energy's interest in Capstone will entitle shareholders to convert their holdings into Capstone shares about a month after settlement of the Shell-Apache transaction is completed in mid February.

Though the Shell-Apache sale has been endorsed by the Fletcher Challenge board, the company indicated that it would be obliged to consider a possible counter bid from another party should one be made.

RUBICON

Rubicon is a newly created vehicle to facilitate the restructuring of Fletcher Challenge.

It will be a New Zealand-based listed entity headed by Luke Moriarty - one of the key architects of the restructuring. The intention is for Rubicon to offer commercial opportunities for groups such as local universities, crown research institutes and other research groups.

But in the short term it will play an important part in dismantling Fletcher group.

It will help in the recapitalisation of Fletcher Forests by acquiring Forest's biotechnology and South American forestry assets at fair value and at the same time removing Forests' $40 million R&D cash commitment to biotechnology company ArborGen over the next four years.

Rubicon will also support the Forests rights issue by providing up to $170 million of any shortfall, and a further $90 million by way of a share placement to it by Forests. In order to meet its underwriting obligations to the Forests rights issue, Rubicon will receive cash equivalent to the amount of the sale of up to 3 million Capstone shares. Fletcher Building will also sub underwrite to Rubicon up to $50 million of the Forests rights issue.

Rubicon will also pay $20 million for Fletcher Energy operations not wanted by Shell. Included are Challenge! petrol operations and related NZ terminals, another terminal in Brisbane and the 14 per cent shareholding in New Zealand Refining. These will be sold "as and when value can be achieved for shareholders."

FORESTS


Fletcher Forests is to be recapitalised to the tune of $557 million.

This includes a two-for-one rights issue at 25c a share, which will raise $427 million.

Fletcher Energy offshoot Rubicon will inject a further $90 million into the coffers of Forests through a share placement.

Rubicon will also buy Forests' biotechnology and South American assets for $80 million, which includes assuming a $40 million liability.

The new capital raisings will improve Forests' debt to total capitalisation ratio from 34.7 per cent to 13.5 per cent.

Total liabilities will fall from $1.1 billion (as at June 2000) to $726 million.

The company said it might use some of its proceeds from the recapitalisation to reduce senior bank debt of the Central North Island Forestry Partnership, provided that its Chinese partner Citic made the same reduction.

"Receipts by the banks of these payments should allow them to grant a waiver in the event of default in respect of earnings:interest ratio covenant which is otherwise expected to occur in December 2000," the company said.

Prices for Fletcher Forests' products were relatively low at present, said Fletcher, and this had been reflected in the offers from third parties interested in buying Forests.

"The board is not prepared to recommend to Fletcher Forests' shareholders, asset sales at current prices."