Rubicon's deal under scrutiny

By CHRIS DANIELS

As Citic and Fletcher Forests have their second attempt at running a forest together, 17.6 per cent Fletcher shareholder Rubicon is left with a forest of its own.

The Rubicon side of the CNIFP deal announced yesterday is expected to attract the most scrutiny from Fletcher's minority shareholders, keen to see how the cornerstone shareholder managed to get such a good price.

In a possible foretaste of the debate Fletcher director Stephen Hurley, representing minority shareholder Xylem, resigned in protest.

"Xylem is not satisfied that the transaction is fair and reasonable to the minority shareholders of Fletcher Challenge Forests Limited," he said in a statement.

Fletcher chairman Sir Dryden Spring said he did not share the views of Xylem and that the independent directors thought the total transaction was fair and reasonable, while being "highly beneficial to all shareholders".

He said many of the institutional shareholders supported the deal.

Rubicon gets the 11,874ha Tahorakuri Forest Estate, valued at $131 million, in return for surrendering 355 million of the 492 million Fletcher shares it owns. This values the shares at 37c each, compared with the recent 20c-25c range.

In a separate transaction, Rubicon will sell 131 million Fletcher shares to the Citic vehicle SEAWI, for $48 million in cash.

Rubicon will defend any charges of a sweetheart deal by saying it was forced to exit its shareholding mainly through payment of a forest, not cash. It owns the forest outright, and can now try to sell it for top dollar.

Fletcher managers yesterday made no secret of the fact that the successful completion of a deal for the CNIF rested entirely upon the co-operation of Rubicon.

And while it has been paid a good price by Citic for its Fletcher shares, its ability to turn its new forest into cash may not be guaranteed.

Sir Dryden said the last time the company was offered money for the Tahorakuri Forest, it was for $16 million less than what Rubicon was paying for it.

He said no part of the deal would have gone ahead had Rubicon not got what it wanted and since it was the current cornerstone shareholder it wanted to get out on the same terms as its replacement.

"If Citic gets 37c to go in, then Rubicon wants 37c to go out," he said.

The forest that Rubicon gets is not yet producing any income for Fletcher, as it will not be ready for harvesting for several years.

It is worth more - more than $3000 a hectare more - than the neighbouring Central North Island Forest. Part of the reason for the higher value is that land comes with the Tahorakuri forest, but the CNIF is on Crown leasehold land.

Rubicon chief executive Luke Moriarty said: "Finalisation of these transactions will represent a good outcome for Rubicon in that the company will crystallise a portion of its FCF shareholding at 37c per share.

"Ultimately, however, the overall price per share at which Rubicon will have exited its total FCF shareholding will be dependent upon the value it can bring in the future to the Tahorakuri forest estate."