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Fletcher Challenge Progress With Restructuring

Fletcher Challenge Making Further
Progress With Restructuring

AUCKLAND, 2 June 2000 – Fletcher Challenge is continuing to make significant progress with its restructuring programme. This week documentation, including independent reports by investment banker Grant Samuel, has been mailed to 70,000 shareholders in the run up to the July 4 special shareholders’ meeting to consider the Paper sale.

In its report Grant Samuel states that Norske Skog’s offer of NZ$2.50 per share for Fletcher Challenge Paper is “fair and reasonable” and “reflects the full underlying value of FC Paper”, and concludes that, “the sale of the business to a substantial industry participant, such as Norske Skog, is probably the best opportunity for shareholders to capture the strategic value of FC Paper’s businesses.”

In a separate report for Fletcher Challenge Building, Energy and Forests shareholders, Grant Samuel found that the specific arrangements agreed with Norske Skog “are fair and equitable as between divisions.” The Paper separation would strengthen the overall financial position of the Fletcher Challenge Group and facilitate the subsequent complete dismantling of the targeted share structure.

The shareholder documentation mail out follows the passing of two other milestones earlier this month, - approval of the transaction by the Overseas Investment Commission here in New Zealand and by the Australian Foreign Investment Review Board.

In relation to the fibre supply arrangements to the Tasman Pulp and Paper mill, the Chief Executive Officer of Fletcher Challenge, Mr Michael Andrews said: “Our agreement with Norske Skog requires either the consent of the CNI forest partnership to the assignment of the current fibre supply arrangements or the execution of an agreement with Fletcher Challenge on substantially the same terms as the current supply arrangements. We believe that the CNI forest partnership will agree upon appropriate supply arrangements with the Tasman mill as such an agreement is also in their interests. Regardless, we can assure Paper shareholders that the need to satisfy this term of the agreement with Norske Skog will not prevent the closure of the Paper sale,” he said.

In a further move aimed to simplify the Group’s balance sheet and assist the restructuring, Fletcher Challenge and the trustees of the Fletcher Challenge Employee Educational Fund have agreed to resettle the fund’s assets into four new funds which will provide continuing educational assistance to employees of the four divisions.


ENDS

“The purpose of the Employee Educational Fund is to fund learning opportunities for Fletcher Challenge employees, and their immediate families. Fletcher Challenge has always believed that the development of its people is vital for the Company’s success,” Mr Andrews, said today. “Establishing the fund was a major and very tangible commitment to our people and I am personally glad that they will continue to have these opportunities into the future when the Divisions have separated from Fletcher Challenge.”

Mr Andrews said that the Fletcher Challenge Employee Educational Fund, which had assets worth $116 million, as at 31 March, consisting of shares in Fletcher Challenge Building, Energy and Forests and a Fletcher Challenge Paper note, would be resettled on four new funds according to the employee numbers in each division. Using 31 March share prices the new Energy fund would have assets valued at approximately $7 million, Building $51 million, Paper $46 million and Forests $12 million.

Together with administrative changes to the Trust Deed, the resettlement removes the Fletcher Challenge Employee Educational Fund from being an insubstance subsidiary of Fletcher Challenge. The accounting impact is shown in the attached schedule.

The impact on net equity is minimal, with an earnings impact of $30 million for Fletcher Challenge Building and $54 million for Fletcher Challenge Energy almost offset by increases in Reported Capital of $27 million and $51 million respectively. There is no impact on Fletcher Challenge Forests’ financial statements. With the removal of the Trusts from insubstance subsidiary status, distributions from the funds will no longer be a charge to the earnings statements of the divisions or the Group.

The move also has an impact on equity and debt for the Paper division, but this is fully covered in the proposed Norske Skog transaction.

Mr Andrews said the continuing progress on the separation process was very satisfying. “We anticipate that the establishment of the four new trusts would be completed shortly. We remain committed to our December deadline for completing the restructuring of the Company. We will of course continue to keep shareholders informed of any significant developments.”

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