Getting all the cash into the same bucket

Press, 24 October 1980, Page 17

Getting all the cash into the same bucket

PA Wellington i “Getting all the cash into Ithe same bucket" was one of Ithe descriptions Fletcher Challenge. Ltd’s chairman ‘ designate (Mr R. R. Trotters used to describe the reasons, for New Zealand’s largest ! merger. (• Mr Trotter made the com ment while referring to the . enhanced negotiating power ] the company would have on • future borrowings — but. it also touched on a problem /that has been exercising the I financial community in recent weeks. That is the difficulty arising from both Fletchers and , Challenge receiving suhstanJtial equitv- contributions I from shareholdines in Tas■j'man vet being unable to touch the Tasman profits for diviidend purnoses. ’/ This distortion of earnings; J figures in relation to the! c 'companies' individual cash! flows and dividend capac-> lities. has become particu-j ‘parly evident in the last: .'financial year as Tasman’s; a J burgeoning profits had a' jhefty effect on the Fletcher! s | and Challenge profit figures. I J Mr Trotter admitted that] jboth companies have seen’ “The constraining influence on: i(dividends through the equity -nature of these contribul.ltions. ~] But although analysts -have been anxious to calculi] late the theoretical share II iworth of the shares in the -;new company, this is a difficult task.

Mr Trotter emphasised that it was a merger proposal rather than a bid. but he made it clear he .exnected the market to react favourably te the combination of the three companies to form a much stronger single unit He said that the expected market capitalisatio,. of the new company — b sed on calculations on the •shareprices of Fletcher. Challenge and Tasman on Friday, was $34Sm — and that the new group would have a capital of 220.688.000 ordinary 50c shares; this would suggest a market price of Is?c a new share.

But the shares of Flethers. Cba’lenge. and Tasman are rising rapidly, and the market is already talking of a price of between 200 c and 300 c.

Asked about a shareprice fo. the new shares, Mr Trotrier simply replied: “1 have ;no idea." But he said that he would be dissatisfied if there was inot a favourable reaction ■and substantial confidence in * the new company’s prosjpects. ■ It was not an offer to 'shareholders, it was a con;cept. and Mr Trotter said he (didn’t want to have to go to shareholders and say “there’s 200 c, or whatever. . in it for you." The three were being : brought together, and calcu- ■ lations done, on rite basts of ■ sustainable earnings, asset backing, and so on. he said.