Xylem out of the loop in Fletcher share war

By PAM GRAHAM

Xylem, the US fund manager that helped block Fletcher Forests' US$650 million ($1.36 billion) central North Island forests deal, has lost control of a key shareholding in the forestry giant.

Fletchers said yesterday that Xylem was no longer managing money for the owner of a 7.3 per cent stake in Fletcher Forest.

Fletcher Forests managing director Terry McFadgen said the Ohio Public Employees Retirement System has "advised me that they are seeking a new manager for their fund".

He declined to say whether that meant there would be a revival of the plan to buy the Central North Island Partnership (CNIFP) out of receivership.

"Until they have a new manager we don't have anyone to talk to," McFadgen said.

Fletcher Forests failed to get 75 per cent of its shareholders to approve a deal to buy the forest at a meeting in August where Xylem president Stephen Hurley, Guinness Peat Group's Tony Gibbs and Gary Weiss, and Bruce Sheppard of the Shareholders Association, all spoke against the deal.

The first sign of changes at Xylem were in a notice to the stock exchange from Evergreen Forests on September 9 that said Hurley had resigned from its board.

"The arrangement that Xylem had with their investors expired some time ago. It's part of a review that was anticipated," said Evergreen chairman Peter Wilson.

"Our advice is that, as a consequence of that review, the beneficial owner of the shares has determined that they will make new arrangements. As a consequence of that, Mr Hurley was required to resign from the board."

Wilson expected a new appointment "in due course, but I would think in the next couple of months".

Hurley was unavailable for comment. He fired some of the first shots in a campaign that scuppered the CNIFP sale, arguing that Fletcher Forests' 17.6 per cent shareholder, Rubicon, was getting a sweet deal. In the end shareholders agreed.

The funding of the plan was complicated, with South East Asia Wood Industries, a company associated with China International Trust and Investment Corporation, buying US$200 million of Fletcher Forests shares, while New Zealand company Rubicon would receive 37c a share and the Tahorakuri forest exit the company. A new debt facility was negotiated that put Fletcher Forests' debt above target levels.

Fletcher Forest shares were unchanged yesterday at 22c.