Fletcher finds forest buyer

By PAM GRAHAM

Fletcher Challenge Forests' shares rose 7.8 per cent after the company yesterday signed a letter of intent to sell all its forests for $685 million.

The buyer is The Campbell Group, an Oregon-based timber management company.

The deal threatens 150 jobs and introduces an unknown quantity into the forestry industry.

The price was less than the $728 million value Fletcher Forests ascribed to the assets at its annual result on Friday.

If completed as planned by the end of the year, Fletcher Forests will change its name and see what it can achieve in the much-talked-about area of adding value to wood.

From a starting point of three sawmills, two remanufacturing plants, one plywood mill, one roundwood plant, a marketing infrastructure in the US and no debt it is promising expansion, initially from existing plants.

"We'll be smaller but more profitable and more focused," said chairman Sir Dryden Spring.

The unknown is what role Campbell will play in the industry and what arrangements it will make for management and marketing. Fletcher said it would secure wood supply as part of the final deal.

Industry sources said Campbell had not invested outside the US before but had been looking at New Zealand for a while and had been rumoured to have talked to Carter Holt in the past. "They're credible and good people," one said.

Fletcher Forests had received several proposals but the one chosen had a firm price and no financing conditions. A group with a local ownership component was believed to have also been pursuing the assets.

The ability to get any sale away had been questioned because so many forests are currently for sale and the Central North Island Forest Partnership estate has been on the market for more than two years.

Fletcher is hoping to return $558 million, or $1 a share, to shareholders, which includes $140 million of proceeds from earlier sales. Its biggest shareholder is Rubicon, with 19.9 per cent.

Fletcher said it was investigating whether it needed 75 per cent shareholder approval for the sale. A report by an independent adviser will be provided. Spring said he expected major shareholders to support the transaction.

Fletcher hopes to sign a sale agreement by October. It has agreed to negotiate only with Campbell until the end of this year and must make a payment to Campbell if the transaction does not proceed, or if it starts other talks during in that period.

"The letter of intent does not create a contractual commitment to either party to complete a transaction," the company said.

The new Fletcher company will have an asset backing of about $234 million, equal to 5.2 times earnings before interest, tax and depreciation.

Fletcher Forests shares rose to $1.24 on the news and Rubicon shares rose 7.1 per cent to 75c.

"It will be the beginning of a new era," said Spring. "What the name will be will be decided and revealed in due course.

"It [the company] will be driven by marketing higher value products that consumers want, which has the capability of manufacturing them into those products, and very importantly, putting them in the place where they want to buy them from."

The deal

* Non-binding 'letter of intent' signed.

* Fletcher Forests' entire forest estate to sell for $685 million.

* Buyer to be The Campbell Group, a fund manager based in Oregon.

* Deal includes related assets and forest land.

* 150 jobs affected.

* Fletcher to return $558 million, or $1 a share, to shareholders.

* Sale agreement expected by October 31, deal to be concluded by year's end.

* Fletcher Forests to adopt new name.