By Geoff Senescall
Fletcher Paper shareholders face a "significant rights issue" if the company fails to merge its operations with its 50.8 per cent Canadian subsidiary, Fletcher Canada.
According to analysts, shareholders could be called on for around $500 million to help to shore up Fletcher Paper's over-geared balance sheet.
Another implication of
a "no" vote to the merger proposal - which has so far received a cool reception in Canada - is the suspension or limiting of dividend payments.
These scenarios are spelled out in an independent appraisal by Macquarie New Zealand assessing the fairness for Paper shareholders - ahead of a November 1 vote - of the proposed merger with Fletcher Canada.
It is one of four independent reports in a weighty information document being mailed to shareholders of both Fletcher Paper and Fletcher Canada.
All reports judged the deal, to create a company with $6.9 billion of assets, as fair and reasonable.
Macquarie's concerns for Fletcher Paper shareholders surround the company's debt of $3.6 billion, which is higher than the rest of the Fletcher group.
Fletcher Paper makes up 47 per cent of the assets and 62 per cent of the gross interest-bearing debt of the group, which includes building, energy and forestry divisions.
Macquarie believes the Fletcher board will take steps to protect these three divisions from Fletcher Paper if the group's investment-grade credit rating for senior debt is threatened.
Macquarie, in judging the merger proposal fair, does not think there is another party in the wings willing to make a more attractive offer than the one on the table.
Anyone interested has had nearly three months to make a move. No one has.
Macquarie values Fletcher Paper shares at between 119c and 225c each, putting a equity value on the company of between $755 million and $1.43 billion.
The merger proposal with Fletcher Canada values the Fletcher Paper shares at 184c.
Adding in $350 million of synergy benefits, Macquarie assesses the equity value of the merged company to be between $2.46 billion and $3.27 billion.
Macquarie says the effect of the merger will simplify Fletcher Paper's present corporate structure and improve its capital structure.
This will enable it to participate in the future industry rationalisation.
For shareholders who find the union with Fletcher Canada unattractive, their best option is to sell their Paper shares between the period when shareholders vote to approve the proposed merger and its implementation.
