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Fletcher Paper sacrificed for FCL's remnants

By Nicholas Bryant

Friday 7th July 2000

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The message from Fletcher Challenge chairman Roderick Deane to shareholders on Tuesday was clear; globalisation was as much behind the sale of Fletcher Challenge Paper as the company's crippling debt.

Shareholders agreed the deal to sell to Norske Skog was a good one when placed in the context Dr Deane repeatedly referred to.

The $5 billion price was at an 83% premium to the 12- month average share price and globalisation, the merging of already large companies to create fewer "super companies" which gain synergies and cut costs, is certainly happening.

But some shareholders who were keen to continue investing in the paper sector were not convinced the $2.50 a share cash-exit was the best possible outcome.

Those disappointed investers questioned being sidelined and having to re-invest but Dr Deane said the board's primary concern was always maximising shareholder value.

"As we went through a thorough evaluation process a share swap was included in the possibilities. However, it was the board's judgment that the Norske Skog offer did represent the best value going forward," Dr Deane said.

His declaration the deal was a move forward for shareholders was questioned by some analysts.

"It may be that of all the deals Norske Skog was the best, it just depends who for. It's hard to argue Fletcher Paper shareholders are moving in any way forward in their investment of the company. They're leaving it," the analyst said.

Dr Deane said the deal's 83% premium over the average share price for the preceding year compared well with other paper-industry acquisitions over the past six to nine months.

"The higher equity premiums for these sales were in the 43-69% range, so Paper was ahead of the best," he said.

But the New Zealand dollar has fared badly over that time.

As veteran shareholder rights campaigner Max Gunn said to Dr Deane at Tuesday's meeting: "Don't forget it will be a cheap buy for the Norwegians with their strong kroner. We will be paid in our utterly depressed currency."

But shareholders agreed the sale of Fletcher Paper was valuable for other FCL shareholders as it aided the complex issue of separating the remaining three divisions, Fletcher Forests, Fletcher Energy and Fletcher Building.

When settled in August the sale will reduce the group's net interest-bearing debt from $3.7 billion to $1.6 billion, a significant chunk of which will go toward FCL's other problem child, Fletcher Forests.

Dr Deane said Fletcher Forests was likely to be next on the block. "Forests can't stand alone either because of the its level of gearing. It's very hard to restructure or sell the non performers while they're in the letter stock structure," he said. Plans were on track for each of the remaining divisions to be separated and either sold, recapitalised, or continue as stand-alone companies.

Roderick Deane

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