Sir Ron's court bid piles on pressure

By JIM EAGLES business editor

Sir Ron Brierley's Guinness Peat Group has launched a backdoor legal challenge to try to stop the complex Fletcher Challenge Forests-Citic-Central North Island Forests deal.

A special meeting of FCF shareholders will decide today whether to approve the hotly contested $1.4 billion proposal.

The major resolution, which requires a 75 per cent majority, is seen as too close to call.

But even if the decision is in favour, GPG is now targeting a second vote, two weeks later, which is also essential to the deal.

On August 27 Rubicon, FCF's major shareholder with 17.6 per cent, is holding a shareholders meeting to seek approval for that stake being sold back to FCF for forests and cash equivalent to 37c a share, clearing the way for Citic to become the cornerstone shareholder.

GPG, which owns 19.9 per cent of Rubicon, is asking the High Court to make two declarations that would have a huge impact on that meeting.

First, it is asking the court to declare the share buyback to be a major transaction - one involving more than 50 per cent of Rubicon's assets - and thus requiring a 75 per cent majority.

Secondly, it has filed a separate claim seeking to block American investor Perry Corporation from voting its 15.9 per cent of Rubicon on any such resolution.

Given GPG's voting weight, especially if Perry was sidelined, a 75 per cent margin would be difficult to achieve.

The papers filed by GPG in support of the first claim argue that the share buyback involves more than half of Rubicon's assets but is "not in the best interests" of Rubicon's shareholders.

They note, in somewhat aggrieved tones, that "without the prior sanction of any resolution of its shareholders" Rubicon has already committed itself to vote for the deal at today's meeting.

But the papers add that the various transactions around the CNIF purchase are interdependent and that "if one of the sales does not proceed, the other sale will not proceed".

In its statement on the second claim, GPG maintains that Perry disguised the extent of its holding in Rubicon.

The papers claim that Perry initially acquired 11.7 per cent of Rubicon and then on May 31 last year advised that its shareholding had been reduced to 4.9 per cent. But in fact "Perry retained a relevant interest in the shares".

In the meantime, GPG alleges, Perry acquired an interest in further parcels of Rubicon shares, which were held in the names of Deutsche Securities and UBS Warburg, but did not give notice of its acquisition.

When GPG acquired its shares between June 26 and July 8 this year, it expected to be in a position to "exercise significant influence over the direction of the company and the appointment of the board".

It was not aware that Perry also had a significant block of shares which would act as a counterweight.

Then on July 12, just before Rubicon's annual meeting on July 29, Perry issued a notice that its shareholding in Rubicon had increased to 15.9 per cent.

GPG alleges that this represents a breach of the substantial security provisions of the Securities Act and is asking the court to order Perry to forfeit its Rubicon shares and, in the meantime, prevent it from voting the shares.

GPG solicitor Richard Shera said he did not know if the court would make a decision before the shareholders' meeting. Rubicon acknowledged the legal actions but declined to make any further comment beyond pointing out that no date had been set for a hearing.

The latest court action comes just two days after FCF and Rubicon beat off an earlier challenge by another US-based investor, Xylem, seeking to block Rubicon from voting on the main resolution approving the deal.

Justice Hugh Williams ruled, in a decision issued by the High Court on Saturday night, that the company was entitled to divide the proposal into separate resolutions.

Rubicon could, he said, vote on the major resolution, which will require a 75 per cent majority, because its part of the deal was not mentioned.

Now, while Rubicon will be able to vote its shares at today's meeting, it will do so knowing that its stance could be overturned in two weeks.

Today's meeting, at Eden Park, will decide on a package of measures, including:

* FCF paying $1.4 billion for 163,000ha of forests and three sawmills owned by the CNIFP, which is in receivership.

* Citic, an investment arm of the Chinese Government, buying into FCF through Hong Kong-listed South East Asia Wood Industries Holdings, paying $413 million for new shares at 37c each, compared with the market price of around 23c.

That will make Seawi FCF's largest shareholder with a 35 per cent stake and two seats on the six-person board of directors.

* Fletcher borrowing a further $880 million from banks.

* Rubicon getting out of its 17.6 per cent stake in FCF in exchange for 11,874ha of forest and $48 million in cash coming from Seawi estimated to equal 37c a share.

If the package wins approval then, as well as the GPG action, two further legal moves by Xylem are due to be discussed at a judicial conference on Thursday week.

One involves challenging the Rubicon exit as a breach of the Companies Act provisions on buybacks.

The other is a more general complaint that Xylem, which is not being offered the same exit opportunity for its 7.3 per cent of FCF, is being unfairly oppressed by the deal.

Xylem president Stephen Hurley arrives in Auckland early today in time for the special shareholders meeting.