Forests stock soars amid sale rumours

By GEOFF SENESCALL

Fletcher Forests shares soared in heavy trading yesterday as speculation intensified that a sale is imminent.

The buzz circulating around broking houses and institutional offices was that an announcement could be made as soon as Monday. But there were split stories of whether this might relate to the full sale of Forests or the disposal of the 40,000ha plantation in the Bay of Plenty known as the Compass Estate.

One broker said that, with the sales process drawing to a close, punters were piling into Forests because they did not want to miss out.

More than 13 million Forests shares changed hands as the price closed up 4c at 90c.

Among the potential buyers are US forestry investors John Hancock Natural Resources and Zylem (already an 8 per cent shareholder in Forests), the Malaysian timber firm owned by the Tiong family, Oregon Forestry, and the Japanese forestry concern Nissho Iwai.

Forests' Chinese partner in the Central North Island forestry asset, Citic, is also a potential bidder. However, US foresters Weyerhaeuser and Plumcreek are thought to be no longer interested.

Fletcher Forests' response to the speculation was to trot out its standard line that the process was still on track and that all options were being considered.

But spokeswoman Ginny Radford did confirm that selling the Compass Estate was an option. Further, it wanted to stress that the estate was only 40,000ha and not 400,000ha, as some people in the market had suggested.

The growing speculation around the sale process comes as decision-time looms for Fletcher Challenge.

The company has set an internal deadline of this month to settle the fate of its three remaining divisions, which also include Building and Energy assets.

But because Forests is sitting on debt of about $1.2 billion, it must be dealt with first. It is the cashflow and equity of the Energy and Building divisions that underwrite the high gearing of Forests at the corporate level.

If Fletcher Forests is not sold, its balance sheet must be recapitalised if it is to stand alone, either through bringing in a new shareholder or selling assets.

But while attention turns to Forests, speculation about the most attractive asset, Energy, suggests that interest might not have been as strong as first thought. Its share price has rallied about 45 per cent over the past three months to sit at 786c, putting it within range of most broker valuations of $8.22 to $10.10 a share.

However, excitement around Energy has waned in recent days on talk that only one party had put in a final offer when bids closed last week.

That bid is believed to have come in at the lower end of brokers' valuations and has been rejected.

Morgan Stanley, advisers to Energy, are now understood to be working on spinning off the company as a standalone entity. But brokers are not ruling out the possibility of a revised bid.