Income of new industrial giant will top $2 billion

Press, 23 October 1980, Page 1

Income of new industrial giant will top $2 billion

Staff reporters and Press Association

Three of New Zealand’s biggest companies, Fletcher Holdings, Ltd, Challenge Corporation, Ltd, and Tasman Pulp and Paper Company, Ltd, are engaged in the biggest merger in New Zealand history.

They will form the biggest commercial corporation in the country,, to be named Fletcher Challenge, Ltd. The new company will employ about 20,000 people and sell $2OOO million worth of products a year. This is as much as 25 per cent of the Government’s income, and 12 per cent of the total national income. ft will employ about $l7OO million in assets, and have about 40,000 shareholders. The' new group’s profits will be in the region of $BO million, and its exports will earn New Zealand about $4OO million a year. The merger - proposal was welcomed today by the Prime Minister (Mr Muldoon), criticised by the Leader of the- Opposition (Mr Rowling), condemned by the leader of the Social Credit Party (Mr Beetham), and accepted, with caution,, by the president of the F.O.L. (Mr W- -L Knox). The stock market reacted with an exceptionally strong one-day performance, although the widely held belief that Mr Muldoon is winning the leadership struggle may also have had its effect. The New Zealand United Corporation index, an indicator of leading share prices, rose almost 12 points yesterday 'to . close at a record 487.97. The merger proposal is subject to High Court and shareholder approval. This is required under the Companies Act because shares will be cancelled and new ones issued. The Examiner of Commercial Practices (Mr A. E. Moncghan) consented to the Challenge-Fletcher-Tasman grouping yesterday, v'■ The chairman and. chief executive officer will be Mr R. R. Trotter and the managing director will be Mr H. A. Fletcher.

Sir James Fletcher will be the president. The head office of the company will be in Wellington. “The proposal will increase employment opportunities and does not involve any . reduction in domestic ' competition,” said Mr Trotter. “At present share prices the new company will have a market capitalisation of $346 million which is not substantially larger than N.Z. Forest Products. It would only rank thirtieth in size against listed Australian companies,” he said. There were three, overriding reasons for the decision to merge, said Mr Trotter last evening. He said that there was an area of potential conflict between Fletchers and Challenge through the

involvement in Tasmam The merger gave an obvious opportunity to con* centrate the three companies” resources. He said the merger would give the new company much better international credibility in raising loans. Third, it would allow the new group to develop management talent in a major business. At the press conference, also attended by Mr Fiet-: ch er, Mr Trotter showed

extreme sensitivity to a statement issued earlier by the acting president of Federated Farmers (Mr W, R. Storey) who had suggested the merger was contrary to the public interest. . Mr Trotter said there was■ no question of the new group “siphoning money” away from the farming sector. “In fact in Challenge we’ve been siphoning money away from our other interests towards farming for years,” Mr Trotter said. The new company would have six divisions. The existing Challenge company would be divided into rural and finance subsidiaries, while Fletchers would be split into construction, steel and building materials. Tasman would be the fifth division, and eventually a new aluminium subsidiary would be formed to control the planned new smelter for ; Otago. The head office group, to be headquartered in Wellington, would consist of a small group involved in planning and financing. The major interests of Fletchers are: a majority shareholding in Marac Holdings (finance and merchant banking), 25 per, cent of N.Z. Light Leathers, 25 per cent of Trave* lodge, 42 per cent of Vacation Hotels, 20 per cent of Revertex Industries, 28 per cent of Pacific Steel, and 25 per cent of Patience and Nicholson.

Major interests of Challenge Corporation include: Wrightson-N.M.A., Broad* lands (finance and mer* chant banking), Wrightcars, 40 per cent of Toyota New Zealand, Ltd, Morrison Industries, MacEwans Machinery, The Great Outdoors Company, and Rockgas, Ltd.

Fletchers and Challenge together already held about 85 per cent of the capital of Tasman Pulp and Paper.