Fisher & Paykel Announces Separation Plans

Fisher & Paykel Industries Limited
78 Springs Road, East Tamaki
Private Bag 14-917, Panmure
Auckland, New Zealand
Telephone: +64-9-273 0600
Facsimile: +64-9-273 0536

20 December 2000

Dear Shareholder

We are pleased to announce that subject to Court and Shareholder approval, Fisher & Paykel Industries Limited will be separated into two listed public companies - Fisher & Paykel Healthcare (being the current Fisher & Paykel Industries Limited) and a new holding company (as yet unnamed, but referred to in this letter as Newco) incorporating the Appliances and Finance businesses.

Your Board will be recommending the separation as a further step in the process that we instigated in February 1998 to improve shareholder value. Since April 2000, the process has included an intensive review by the Board and Deutsche Bank of the options available to us to achieve long term shareholder value for our shareholders.

SUMMARY

The separation will result in two listed technology based companies with separate funding and balance sheets. Their executive will report to separate boards of directors.

Fisher & Paykel Healthcare will remain listed on the New Zealand Stock Exchange. In order to increase the value of Healthcare, the Board has decided to offer approximately 20 percent of Healthcare to United States investors through a public offering in the United States (U.S. Offering) and to apply to have Healthcare listed on NASDAQ.

After the separation, Newco will own 100 percent of Fisher & Paykel Appliances and Fisher & Paykel Finance. Newco also will own approximately 20 percent of Fisher & Paykel Healthcare. Newco will seek listing on the New Zealand Stock Exchange.

Subsequent to the separation, it is intended that both Fisher & Paykel Healthcare and Newco will seek a secondary listing on the Australian Stock Exchange.

Fisher & Paykel shareholders on the register at the time of the separation will own the majority of Fisher & Paykel Healthcare and 100 percent of Newco. They will also receive a cash payment that will be funded out of a portion of the proceeds from the sale of Healthcare shares in the U.S. Offering. The remainder of the net proceeds from the U.S. Offering will be retained by the company.

Although no assurances can be given, your Board is confident that the separation should increase value for shareholders by allowing the markets to separately value Healthcare and Newco. This is consistent with Deutsche Bank’s advice.

The implementation of your Board’s recommendations will be complex, involving a number of legal and regulatory procedures. Preparatory work on the process has been completed. Although at this time the Board does not see any obstacles to the separation, should any impediment arise during the process (for example, unfavourable market conditions, third party regulatory approvals or waivers unacceptable to the Board, or any other matter the Board considers is not in the best interests of shareholders) the Board may decide not to proceed. In such a situation, shareholders would be informed of the reasons for the decision not to proceed.

At this time your Board considers that it is appropriate, given the complex commercial and regulatory requirements, to provide you with a briefing of the rationale behind this restructuring and the steps we will be taking towards implementation.

PROCESS

In February 1998 our Chief Executive Officer, Gary Paykel, and his executive recommended to the Board that the Company be restructured to focus on two core businesses with international potential, together with a supporting finance business. The Board approved this restructuring in principle.

In April 1998 restructuring plans were announced, including divestments of the Panasonic agency to Matsushita Electric of Japan and Cellnet Mobile Services to Telecom New Zealand.

September 1998 saw the first stage of the restructuring completed, with the formation of three business units:

 Healthcare
 Appliances (formerly called Whiteware)
 Finance

During the first half of 1999 these individual business units continued their restructuring processes as they focused on their strategic goals. Appliances, for example, closed down Screencraft, our printed circuit board manufacturing subsidiary, to enable them to purchase PCBs more competitively on the international market. Finance started winding down their operations in Australia.

In the latter part of 1999, your Board deemed it appropriate to seek external advice on the structure of the Group to obtain the best long term shareholder value.

The Board interviewed a number of New Zealand and internationally based merchant banks. Deutsche Bank was appointed in April 2000 to conduct a review of the options available to increase long term shareholder value in the company.

We publicly announced this review in June 2000, following unfounded press speculation about the possible sale of our Healthcare business.

Deutsche Bank’s initial findings were provided in September 2000. The review has been an evolving process, as the Board has engaged in a detailed analysis of the findings of the various Deutsche Bank reports.

BOARD RECOMMENDATIONS

Your Board will be recommending that Fisher & Paykel be separated into two listed public companies:

 Fisher & Paykel Healthcare
 Newco, a holding company owning the Appliances and Finance businesses and a shareholding of approximately 20 percent in the Healthcare company.

Both these companies will report to separate boards of directors and have their own funding and balance sheets.

SHAREHOLDERS’ POSITION

Immediately following the separation, Fisher & Paykel shareholders will own:

 100 percent of Newco : the Appliances and Finance company.
 Approximately 80 percent of Fisher & Paykel Healthcare, consisting of:
 approximately 60 percent by way of direct shareholding, and
 approximately 20 percent indirectly through their 100 percent ownership of Newco.
 In addition, in conjunction with the separation, shareholders will receive a cash payment that will be funded out of a portion of the proceeds from the sale of Healthcare shares in the U.S. Offering. The remainder of the net cash proceeds from the U.S. Offering will be retained by the company. The amount of cash to be paid to shareholders will depend on valuations and balance sheet requirements.

Approximately 20 percent of Fisher & Paykel Healthcare will be owned by investors who purchase shares in the U.S. Offering.

Shareholders will be able to separately trade the shares they own in Newco and the shares they own in Fisher & Paykel Healthcare.

When the process is fully implemented the new separated structure will be as follows:

...GRAPHIC NOT REPRODUCED...

FISHER & PAYKEL HEALTHCARE

The operations of our Healthcare business will remain in Fisher & Paykel Industries Limited. Fisher & Paykel Healthcare will remain listed on the New Zealand Stock Exchange and, in conjunction with the U.S. Offering, will seek quotation on NASDAQ. We have appointed Deutsche Bank to advise on and Lead Manage the Healthcare U.S. Offering. Subsequently it is intended that the company will also seek a secondary listing on the Australian Stock Exchange.

NEWCO

It is our intention to list Newco on the New Zealand Stock Exchange. Subsequently the company also will seek a secondary listing on the Australian Stock Exchange.

Newco will own:

 100 percent of Fisher & Paykel Appliances

 100 percent of Fisher & Paykel Finance

 Approximately 20 percent of Fisher & Paykel Healthcare

Newco’s holding in Fisher & Paykel Healthcare reflects a desire to maintain close relationships between the companies and some shared technology initiatives.

IMPLEMENTATION

The implementation of your Board’s recommendations is complex, involving a number of legal and regulatory procedures that play a significant part in the process.

Our first task is to administratively separate our Healthcare and Appliances businesses. This is a complex matter as it involves a number of functions that are currently operated on a group-wide basis.

The restructuring must be effected by a Court approved arrangement. This arrangement also requires the approval of 75 percent of shareholders.

If approved by our shareholders, it is your Board’s intention to immediately proceed to the U.S. Offering and completion of the full separation of both the Healthcare and Appliances operations as outlined above.

It is your Board’s intention to complete the separation process as soon as possible taking into account the issues involved and the necessary regulatory requirements. We anticipate completion of the separation process during the latter part of calendar 2001 or at the latest, early part of calendar 2002.

As a consequence of this proposal, we are subject to the Securities Laws of the United States and New Zealand. These laws limit what we can discuss with our shareholders until we have completed the separation. However it is our intention to update shareholders at appropriate times throughout the process to the extent permitted by these laws. Comprehensive materials will be provided to shareholders in advance of the shareholders meeting to assist them with their decision.

CONCLUSION

International financial markets value Healthcare and Appliance companies in completely different ways. Your Board believes it is appropriate that we create stand-alone Healthcare and Appliance companies that can attract investors who understand the merits of their respective operations, their technology and their future growth prospects.

Your Board believes that the proposed structure it will be recommending is the most effective way for shareholders to obtain long term value for their investment in the company.

Yours sincerely
FISHER & PAYKEL INDUSTRIES LIMITED

Sir Colin Maiden
Chairman

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