Rubicon investor in $1.4b suit

Rubicon shareholder Perry Corp - already the star of one New Zealand's biggest securities law controversies - faces a $1.4 billion lawsuit in the United States for alleged market manipulation.

The New York hedge fund owned by Richard C. Perry was accused but cleared by New Zealand courts of warehousing shares to hide a stake in Rubicon.

Now, billionaire investor Carl Icahn is accusing the $11 billion Perry fund of manipulating the market in the US with a vote-buying scheme connected with the planned takeover of a drug company, King Pharmaceuticals.

The company making the takeover bid in the US, Mylan Laboratories, said the lawsuit was baseless and a "feeble" attempt to intimidate Mylan and its shareholders.

The Wall Street Journal reported last week that Perry did not believe its actions were improper or unusual.

A parallel with the facts of the Rubicon controversy is Perry's use of side-deals with sharebrokers to structure its financial exposure to a listed company at the alleged expense of market transparency and shareholders' rights.

Mylan is the biggest manufacturer of generic drugs in the United States.

In July, the company struck a multibillion-dollar deal to buy King Pharmaceuticals.

The deal needs shareholder approval.

One of the biggest shareholders, Icahn - himself a wily corporate raider - is trying to block it.

Perry owns 7 million shares in King and wants the deal to go through because it will reap a profit estimated by one news report to be up to $40 million.

In a nifty play, Perry has taken a 9.9 per cent stake in Mylan, to help push the deal through but without exposure to the usual risk to a shareholder of fluctuations in the company's share price.

The fund has used hedging deals with sharebrokers Bear Stearns and Goldman Sachs to split off the economic risk but retain voting rights.

In the $1.4 billion lawsuit, filed 10 days ago in Pennsylvania, Icahn accuses Perry of "unlawful vote-buying", saying the fund and other arbitrageurs have used "sham transactions" with brokerages in this and other cases to secure voting rights.

The essence is that the investors know they will be able to offload the shares at the purchase price - making the voting rights risk-free.

The debate in the US business press is over the legality and morality of such methods.

The Wall Street Journal quoted an unnamed Perry ally as saying: "You could always buy votes - it's perfectly legal. Richard Perry could have given every shareholder a dime and said give me your vote."

Perry triggered one of the highest-profile and most vigorously fought legal stoushes of the New Zealand sharemarket this decade when it suddenly emerged as a nearly 16 per cent shareholder in Rubicon.

That was in July 2002, just after Guinness Peat Group grabbed 19.8 per cent of the company in an overnight raid.

Rubicon held a swag of votes for a pending meeting on a major deal proposed by what was then called Fletcher Challenge Forests.

Again, the controversy stemmed from splitting apart share ownership and economic exposure.

Perry emerged from the shadows after unwinding equity swaps - devices that expose an investor to the performance of a stock without a purchase of shares - and buying back shares.

GPG sued, believing Perry had "warehoused" the shares with investment banks Deutsche and UBS Warburg in breach of New Zealand's sharemarket disclosure laws.

GPG won in the High Court, lost in the Court of Appeal, and was turned away by the Privy Council.

Asked if he was surprised by the developments in the United States, GPG director Tony Gibbs said: "Does a leopard change its spots?"

Perry holds a 19.8 per cent stake in Rubicon - the majority shareholder in Tenon, formerly Fletcher Challenge Forests - worth nearly $58 million.

GPG sits alongside with a 19.9 per cent stake.

Asked about GPG's current relationship with Perry, Gibbs said, "I don't particularly have one" but communications through third parties were "cordial and polite".

The lawyer who acted for GPG in the Rubicon dispute, Rick Shera, said: "On the face of it, it appears to be very similar to what Perry did down here."

He was watching with interest.

Takeover tactics

* Rubicon shareholder Perry Corp is caught up in a $1.4 billion legal case in the US similar to one it faced in New Zealand.

* It is accused of market manipulation.

* The case relates to its role in helping US drug company Mylan Laboratories take over rival King Pharmaceuticals.