Row looms over forest vote

By CHRIS DANIELS

Fletcher Challenge Forests is a step closer to gaining control of the Central North Island Forest, but a row is brewing over the looming shareholder vote to approve the $1.3 billion scheme.

Two regulatory hurdles have now been cleared by Fletcher, which announced yesterday it had received approval from the Overseas Investment Commission to buy the 160,000ha forest, Hong Kong-based company Seawi coming on board as a 35 per cent shareholder.

Land Information New Zealand has also agreed to the assignment of the Crown Forestry Licences (under which most of the forest is held) to Fletcher.

On the regulatory side, all Fletcher now has to do is convince the Commerce Commission that its purchase of the forest will not lessen competition.

This endorsement is expected to be delivered before the special meeting of Fletcher shareholders, where the whole deal will be voted on.

And it is the mechanics of this vote that has thrown up another curly problem for the Fletcher board.

Shareholders' Association chairman Bruce Sheppard, who has raised several objections to the CNIF deal, yesterday said the company was preparing to act unethically in relation to proxy votes held by US-based owners of Fletcher ADRs (American Depositary Receipts).

These ADRs are effectively shares, and carry voting rights. ADR holders account for about 7 per cent of Fletcher Challenge Forest shareholders and are allowed to cast proxy votes for or against the CNIF deal.

Sheppard is upset at the fact that any ADR holder who has not registered a proxy vote by 10am on August 6 (New York time) can have their vote used by Fletcher Challenge to approve the deal.

"Voting stock that is not yours is inequitable because you are making a decision for parties. That is completely inequitable," said Sheppard.

"You should not be able to influence the outcome by voting stock that wouldn't otherwise be voted. If he [Fletcher chairman Sir Dryden Spring] votes the stock that is unconscionable and unethical."

The shareholders must determine the issue, said Sheppard. Sir Dryden had not bought the shares, did not own them, so should not be voting them.

If Sir Dryden had received no instructions, then they should not be used to influence the result, said Sheppard.

The US ADR holders could have made a conscious decision not to vote on the CNIF deal, preferring instead to let the majority of New Zealand shareholders decide what was best for the company. Instead, they would be inadvertently supporting it.

Sheppard said that if Sir Dryden had the discretion to vote for nearly 7 per cent of the company's shareholders, he could effectively neutralise the 7.8 per cent owned by dissident board member Stephen Hurley, who represents the US-based company Xylem.

Hurley is writing to all Fletcher shareholders urging them to vote against the CNIF deal, saying among other things that the company is paying too much money for the forest and handing over control to Seawi and its controller, the Chinese Government-owned Citic.

Company secretary and spokesman Paul Gillard said Fletcher took its American shareholders seriously and was making the effort to get in touch with them all.

"If an ADR shareholder decides not to vote, then automatically the company gets a discretionary proxy to vote those shares."

Gillard said this was a common feature of the depositary receipt arrangements.

"We take our ADR holders seriously. They are shareholders as far as we're concerned and we've taken extra steps to make sure they get their papers."