Sector's future unclear as consolidation bites

By PAM GRAHAM

The much-anticipated consolidation in the forestry sector is under way but even the main players do not know how it will turn out.

One of the influential actors at present is Stanley Renecker from Oregon. He was in town last week but it is still unclear if the timber management company he works for, The Campbell Group, will increase its $685 million bid for Fletcher Challenge's forests.

Robert Hagler, from Boston-based Prudential Timber Investments, has linked up with New Zealanders Trevor Farmer, Mark Wyborn, Adrian Burr and Ross Green to put $725 million on the table in the name of Kiwi Forests Group.

Kiwi Forests spent the week waiting in the wings because Fletcher cannot negotiate with it as part of its controversial arrangement with Campbell Group.

Ohio teachers are also involved because their pension money has been invested in a 7.3 per cent stake in Fletcher Challenge Forests and a 39 per cent stake in New Zealand-listed Evergreen Forests.

It is not clear what role their adviser, UBS Timber Investors, is playing. UBS was bought out by its managers last week and renamed Global Forest Partners.

The role of Harvard University's endowment fund is also cloudy. It is believed to be the pension fund behind Campbell's bid for Fletcher's forests and also a previous low bidder for the Central North Island Forest Partnership estate, which has been in receivership for more than two years.

The man in charge of its timber investments is New Zealander Andy Wiltshire.

In the background sits Rubicon, the holding company of left-over Fletcher Challenge assets, which has a 19.9 per cent shareholding in Fletcher Forests and therefore the call on any sale of its forest if the shareholder vote is 75 per cent.

The Chinese Government's investment company Citic is believed to be out of the chase for the CNIFP estate after failing to get an exclusive right to negotiate, but that does not preclude it resurfacing. It has no interest in Fletcher's forests.

Details of Kiwi Group's plans are scant but it denies it would break up Fletcher's estate into dairy farms or lifestyle blocks.

Prudential will not end up owning any land and is contributing equity into the funding.

The New Zealand investors are putting in both equity and debt. There is no plan to source funds from the public.

A company called Maori Investments is also involved because it is a partner with a pre-emptive right in the Tarawera forest block Fletcher is selling.

Evergreen Forests is looking to expand and how its major US shareholders will facilitate that is unclear. The company has failed to attract New Zealand institutional investors because it is not in any market indexes but it has said it could manage twice its current estate without increasing its head office.

Those not at present involved in the consolidation are Guinness Peat Group, which owns 19.9 per cent of Rubicon, and the Maori tribes of the central North Island who live near the forests, provide the workforce and will be the long-term owners of the land the CNIFP estate is on.

Then there is Carter Holt Harvey. It is the country's largest forest owner and has combined with CNIFP receiver Ferrier Hodgson to form an export log marketing company. It's not known if the new US players will join in, or what other links potentially exist.

Carter Holt is half owned by US company International Paper and it has been trumpeting a portfolio of processing assets built up in the Australian market over the past decade.

Other players include Pelenato Sakalia of New Zealand Trade and Enterprise, who is also an adviser to Economic Development Minister Jim Anderton. Sakalia says he has 10 projects on the go to try to increase wood processing and has been trying to get the industry working together.

He is giving a presentation to the Timber Industry Federation conference in Nelson next weekend.

A dance is planned for the 200 independent saw-millers attending to help relieve the pain of the high kiwi dollar, freight rates and poor commodity prices. All have reduced returns and put some millers into receivership.

The saw-millers are launching a new 100% Pure New Zealand Pine brand and a group have agreed to work together on a push into Europe.

A new weatherboard product is in the wings to compete with concrete cladding products made to look like wood.

Meantime, the Forest Industries Council has been trying to remove tariffs in export markets which get higher the more processed the wood is, and the Government has been lobbying for endorsement of pine as a structural timber product in China.

Overriding themes in this industry are the decline of Fletcher Challenge and the rise of the US-based timber management organisations which co-ordinate investments in timber for global pension funds.

The day of big integrated companies that own trees, export logs, process them and handle logistics and marketing are over.