Xylem starts a forestry fire

By CHRIS DANIELS

A legal challenge yesterday raised the temperature of the dispute over Fletcher Challenge Forests' $1.3 billion purchase of the Central North Island Forest Partnership.

Dissident shareholder Xylem, which owns 7.8 per cent of Fletcher Forests, went to court seeking a ruling that would bar fellow shareholder Rubicon from voting on the deal.

The Boston company wants to block Rubicon, which owns 17.6 per cent of Fletcher Forests, from voting on the special shareholders' resolution needed to approve the purchase of the forest.

Fletcher says that because of the high voting threshold - 75 per cent must be in favour for the deal to go ahead - the Companies Act does not disqualify any shareholder from voting.

The special resolution is required because the purchase is a "major transaction" for Fletcher Forests - its value is greater than 50 per cent of the company's assets.

Shareholders are also being asked to amend the company's constitution, bringing in Hong Kong-listed South East Asia Wood Industries Holdings (Seawi) as a 35 per cent shareholder.

Xylem says that because Rubicon is a related party to a material transaction, it cannot vote on the matter.

A judge will hear arguments in the High Court at Auckland next Friday, before the Fletcher shareholders meeting in Auckland the following Tuesday.

Rubicon has been accused of getting a sweetheart deal from the purchase by selling its Fletcher stake at 37c a share while the market price is about 25c.

Its defence to this charge is that it is receiving cash for only part of its Fletcher stake.

It receives the rest by taking over the Tahorakuri Forest, owned by Fletcher.

The forest is valued at $136 million - which works out at 37c a share. Rubicon will sell the rest of its shares to Seawi for 37c, making $48 million.

The legal challenge is part of a multi-pronged attack against the deal by Xylem president and former Fletcher director Stephen Hurley, who has written to all Fletcher shareholders urging them to vote against it.

The Shareholders' Association is also opposing the deal, and wants shareholders to give it proxy voting rights so it can vote "no" at the August 13 meeting.

Rejecting Hurley's claims that Fletcher is paying too much for the CNIF, chief executive Terry McFadgen said the sale price was the bottom line of receiver Michael Stiassny.

"We know he has previously received at least two competing offers around this level, including an offer involving a major international forestry fund," McFadgen said.

"Why would the receiver sell for less when product prices are continuing to improve, markets are looking good and the senior lenders are getting all their interest paid?"

Banks are owed about $1.3 billion from the collapse of the joint venture partnership between Fletcher Forests and Citic.

McFadgen said price rises for recent log sales had helped to make the whole transaction even more attractive.

The company had taken a conservative approach in its financial forecasts, assuming a 7 per cent drop in average log prices next year.

"In fact, prices are stable or rising at the moment in all our major markets."

He said the independent directors and valuers Grant Samuel and Associates had assessed the CNIF deal as being fair.

They had also endorsed the amount of debt Fletcher was using to pay for the forest.