Letter to soothe investor angst

By CHRIS DANIELS

Fletcher Challenge Forests directors are trying to rally support for their deal to buy the massive Central North Island Forest, sending out a letter to shareholders yesterday seeking their backing.

Company chairman Sir Dryden Spring is using the letter to strongly defend the $1.3 billion deal, which would mean Citic, the investment arm of the Chinese Government, becoming a 35 per cent shareholder in Fletcher.

The Shareholders Association opposes the deal. Chairman Bruce Sheppard says the interests of small shareholders are not being protected.

In his letter to shareholders, Sir Dryden warned of the risks of rejecting the deal, and the benefits they will enjoy if the plan is endorsed at next month's special meeting.

Sheppard is expected to outline to an annual meeting of the Shareholders' Association today the results of his talks with Sir Dryden about the role of Citic-appointed directors on the Fletcher board.

Sir Dryden has already told the association that the Chinese would not take over the company.

"All our discussions with Citic have been strictly on the basis that FCF will remain an independent company, committed to generating wealth for all its shareholders equally," he said in a letter last week.

Sir Dryden stressed this point again in yesterday's letter, saying there were no arrangements about log supply to Citic or China, and Citic's involvement in the company would be strictly that of a financial investor represented at board level.

"Suggestions that Citic will control the company are totally incorrect," he said.

Citic was strongly in favour of more New Zealand-based log processing to add value, rather than the export of logs.

Shareholders will get what Fletcher describes as "comprehensive documentation" outlining the deal in the middle of this month. This will include an independent report into the deal written by Grant Samuel and Associates.

The information officials expect to find in this mailout was the subject of some disquiet within Fletcher management last week.

The Market Surveillance Panel of the Stock Exchange announced the range of disclosures it expected Fletcher to make before asking for approval of the CNIF deal.

It wants Fletcher to tell shareholders about the history of Hong Kong company Seawi, which Citic is using to buy into Fletcher. Correspondence between the Fletcher board and former director Stephen Hurley, who resigned, saying the deal was bad for small shareholders, must also be published, says the panel.

Fletcher chief executive Terry McFadgen last week met his NZSE counterpart Mark Weldon.

McFadgen said he had had a "friendly and constructive" discussion, but would not say whether he raised concerns about the behaviour of the Surveillance Panel.

It is believed Fletcher management were unhappy at the way the panel made its announcement, first alerting the market to the fact it was coming, then suspending trading in Fletcher shares while the announcement was made.

By saying it was not going to grant any waivers in relation to listing rules, the panel, Fletcher felt, was implying that such waivers were going to be asked for.

DF Mainland analyst Bruce McKay said he did not think Fletcher had much of a case against the panel's actions.

"They've come out and said, 'this is what we want'. I guess you could argue the panel are also people who read newspapers and there has been some concern and comment raised about the proposed transaction."

McKay said he suspected the panel would have wanted to "get ahead" of the deal, so if things turned bad later, it could show it was doing its job properly.