Fletcher Energy, Paper Backers Win

Sydney Morning Herald

Wednesday July 14, 1999

By KARYN SCHERER and Bloomberg

Investors holding shares in Fletcher Energy and Fletcher Paper look likely to emerge the big winners in a major restructuring of the group's listed entities.

The long-awaited plans for a shake-up at industrial conglomerate Fletcher Challenge con- firmed moves outlined in a memo leaked to brokers and selected media two months ago.

The company intends to spin off its energy and paper divisions but will keep its building and forestry divisions at this stage and attempt to improve their performance.

Fletcher Challenge chairman Mr Bill Wilson, responding to criticism of the company's performance, described the moves as "bold steps necessary to deliver the greatest value for all shareholders".

Under the latest restructuring plans, Fletcher Paper's cash-rich Canadian subsidiary will complete a reverse takeover of the local paper stock.

Existing holders of Fletcher Paper shares will be offered shares in the new company in a deal which effectively values the shares at $NZ1.84.

Most analysts described the price as fair, given the shares are at present trading around $NZ1.50, although one said the market had been hoping for something higher, at around $NZ2.

The move has been welcomed as long overdue, as it will more than halve debt to $NZ2.1 billion ($1.66 billion). In October, ratings company Standard & Poor's warned that it could cut Fletcher Challenge's BBB rating if the company did not reduce debt significantly.

It is expected that the new company will be a takeover target for other major players in the international pulp and paper market, although Fletcher Challenge says it has not yet held any formal discussions on the issue.

The same fate appears likely for Fletcher Energy. The division, which explores for oil and gas in New Zealand, Brunei, Canada and South America and owns part of New Zealand's largest gasfield, will also be spun off over the next 12 to 18 months and is also seen as a potential takeover target.

The forestry and building divisions are largely unchanged, and will remain as separate listed stocks.

The company indicated that the two divisions will be restructured significantly over the next few years, away from their reliance on commodity prices and towards value-added processing.

Fletcher Challenge chief executive Mr Michael Andrews said the energy division's plans to expand its business "will become incompatible with the balance sheet and risk profiles of the other businesses with Fletcher Challenge".