Takeover risk for Fletcher Forests

By GEOFF SENESCALL and PAULA OLIVER

Credit Suisse First Boston potentially controls the destiny of Fletcher Forests after a $161 million shortfall in the company's rights issue.

Not only is it likely that the broker will become a substantial shareholder, in its own right but it will also probably have its foot on further parcels of shares from other parties who underwrote the issue.

Brokers estimate that it could hold 20 per cent of the Forests shares.

The company might also have access to further stock that could take its holding to 32 per cent.

Credit Suisse First Boston, the organiser of the rights issue, was unavailable for comment last night.

But Fletcher Forests confirmed that there was a 39 per cent shortfall in the $414 million issue, which closed last week.

The shortfall, which equates to 23.9 per cent of Fletcher Forests' expanded capital, would be picked up by the underwriters.

It means that Fletcher Forests will still get the $414 million raised. The recapitalisation of Fletcher Forests is part of the Fletcher Challenge separation programme.

Arthur Lim, of broker Ord Minnett, said that Credit Suisse First Boston was a big buyer of Forests shares yesterday."This is not a sign that the broker was feeling uncomfortable with its position," he said.

"There is a good chance there will be a lot of interest in what would be a strategic stake," Mr Lim said.

He highlighted the six potential bidders who were identified by Fletcher Forests during the sale process as possible starters.

He also noted that the average broker valuation on Fletcher Forests was sitting at around 43c a share. That compares to a 25c a share rights price and yesterday's closing price of 27c.

Dennis Lee, of broker ABN Amro, said the rights take-up was a little better than expected. He did not want to speculate about what would happen to the shortfall.

Credit Suisse First Boston as underwriter, has the right to put 40 per cent of the shortfall to Rubicon - set up to house non-core assets in the Fletcher stable.

It means that Rubicon must find $67 million, a sum well within its financial capacity, says Fletcher Challenge chairman Roderick Deane.

But this sum does not need to be paid till the Fletcher separation process is completed in March.

It is therefore likely that Credit Suisse First Boston may have some discretion over Rubicon's shares.