Sheppard unveils another cunning Fletcher plan

By CHRIS DANIELS

The Shareholders' Association has unveiled its latest plan to protect Fletcher Challenge Forests' small shareholders as the company lobbies for approval of its $1.3 billion purchase of Central North Island Forest.

Association chairman Bruce Sheppard said Fletcher's major shareholder, Rubicon, should step in and agree to buy back the Fletcher shares of those minority shareholders who vote against the purchase.

Shareholders will be asked to endorse a plan in August, allowing the investment arm of the Chinese Government, Citic, to become a 35 per cent shareholder in the company.

Rubicon will sell its 17.8 per cent stake to Citic, partly for cash and partly in the form of an 11,800ha forest that it hopes to sell.

Fletcher has since revealed that it has put aside just over $15 million to buy back the shares of minority shareholders who vote against the deal.

This barely covers the amount it will need to pay US investor Xylem, which opposes the purchase of the forest, so small shareholders could scupper the deal by choosing to invoke their buyback rights.

Enter Bruce Sheppard, chairman of the Shareholders Association, and advocacy director Ross Dillon.

Sheppard feels there is an obvious solution to the problem of minority buyback: Rubicon - which he feels is getting out of Fletcher with a very handsome payout - should offer to buy back the shares of those minority shareholders who object to the deal.

He said most of the institutional shareholders would approve the deal and many smaller shareholders would not vote.

Of those who did not approve the purchase, only a small number would meet the 10-day deadline for them to ask to be bought out by Fletcher.

Fletcher would then arrange with Rubicon to buy the shares.

Sheppard said a worse-case scenario in this deal would require Rubicon to buy back 200 million shares from Xylem, then 50 million from small shareholders, probably

at less than 37c a share.

Rubicon would go from owning 17.5 per cent of Forests to owning 6 per cent of a company three times the size (once Fletcher bought the CNIF), along with the new forest that was part of the deal.

Sheppard said the most it would cost Rubicon was just over $87 million, less than the $98 million it was being paid in cash by Citic for 131 million of its Fletcher shares.

The Companies Act allows shareholders who vote against special resolutions, such as this deal, to be bought out.

Shareholders must first vote against the deal, then, within 10 working days, apply to the company to be bought out.

They cannot set a price for their shares.

The board of the company can then agree to buy the shares and nominate what it considers a fair price.

If the shareholder disagrees with the price, an arbitrator is appointed.

Fletcher's management are trying to avoid this happening by saying they reserve the right to cancel the whole deal if too many shareholders seek to enforce their minority buyout rights.

Rubicon's management have not commented on the Sheppard proposal, but the company is expected to be concerned that any "underwriting" of a minority buyback would encourage some of the larger institutional shareholders to vote against the whole arrangement in the hope of a payout.

Rubicon has consistently said that a large part of the company's payout is in the form of trees, which may not be able to be sold for their present valuation.

It says the company has already compromised by agreeing to accept trees instead of cash for its shares.

Rubicon shareholders would also have to approve Sheppard's scheme, something they would be unlikely to do.