FCL holds out for $1 a share

By GEOFF SENESCALL

Fletcher Challenge would not sell its forestry division for less than $1 a share, despite staring at a present market price of 33c.

The new Fletcher Forests chief, Terry McFadgen, said it could have sold the company for between 80c and 85c two months ago.

But ultimately it would be Forests' shareholders who determined value once the company became a standalone entity in March.

"At that point it will be in play," Mr McFadgen said, especially if the price stayed at its present level.

He also noted that there were no bidding restrictions on parties involved in the sale process, which ended last month without a result. It is understood that six bidders showed interest.

Mr McFadgen would not comment on the parties but said Fletcher Challenge had received a bid from an international firm for its forestry estate. That offer excluded Forests' interest in the Central North Island Forestry Partnership (CNI).

"The reason we were unable to accept that was really related to the offtake log supply agreements for our processing plants.

"We weren't sufficiently comfortable with the arrangement we were offered by that party."

Another crucial factor scuttling a sale, he said, was the failure to extract a reasonable offer for Forests' 50 per cent shareholding in CNI from its Chinese joint-venture partner Citic.

For any sale to work it had to include a deal with Citic, which had offered to buy Forests out of the partnership for $218 million.

The combined offering was worth 80c to 85c a share - short of the $1 to $1.20 a share Fletcher was looking for.

He said Citic's price had to be in the $500 million to $600 million range.

Citic is still pursing legal action against Forests, claiming $US170 million ($424.68 million).

"We are no closer to resolution," Mr McFadgen said. "Both partners will be asked [by the banks] to put some additional funding in and continue forward with the partnership or allow it to be dissolved."

Citic had talked about the need to inject $US200 million. But that figure was not real as the banks had yet to indicate a figure, Mr McFadgen said.

"The rub is that Citic is extremely reluctant to put in money because, due to the way the deal is structured, every dollar they put in benefits us rather than them."

This was because there was not enough value in the CNI partnership to cover the debt.

Outside the banks, it was Forests which held the junior debt of $570 million. Any cash that was injected would first provide cover for those holding the debt.

"But essentially it all comes to a question of whether the partnership has a future or not."

Mr McFadgen conceded that it did not look good.

Even if a zero value was ascribed to Fletcher Forests' CNI shareholding, Mr McFadgen said its shares were still worth between 46c and 69c each.

But the average broker valuation for Fletcher Forests was around 85c a share. This meant they were placing some value on Fletcher Forests' shareholding in CNI.