Fletcher twigs coming in for scrutiny

By PAM GRAHAM

The last bits of the broken-up Fletcher Challenge conglomerate will be scrutinised as never before as Rubicon's takeover for Tenon proceeds in coming weeks.

Rubicon, a box of assets left over from the breakup, is bidding $1.85 a share to take its 20 per cent stake in Tenon, the old Fletcher Challenge Forests minus its trees, to 50 per cent.

It already has 2.17 per cent pledged from Guinness Peat Group and US hedge fund Perry Corp is believed to be on board with a holding, the size of which is not known.

AMP, with 6 per cent, like everyone else, is waiting to see what develops and will not make a decision until closer to the close of the offer, said spokesman Nat Vallabh.

The offer has been notified and can be formally presented from next Wednesday, the day Carter Holt Harvey chief executive Peter Springford has to turn out in public for his company's first-quarter profit.

He will be asked again what his intentions towards Tenon are, but so far indications of interest in assets, rather than the whole company, have been clearest.

Fletcher Building has ruled itself out of bidding but not everyone believes it and speculation continues of a North American bidder.

The valuation range Grant Samuel puts on the company in the target statement and accompanying directors' recommendation, due 14 days after the offer, will set the stage for the final showdown on price in the absence of other offers.

Depending on who you talk to, the assets are the rubbish dump of the Fletcher Challenge empire, or misunderstood gems gleaming now that analysts are spending more time looking at them and the company is providing more information.

The stakes Tenon owns in distribution companies that are preferred suppliers to the US' largest home improvement chains are among those gems.

Rubicon argued this week that $7 million of foreign exchange gains in profit forecasts put out by Tenon on April 8 should not be included in valuations, and that the company was overly optimistic about third-party signoffs on a $1.15 a share capital return coming from its forest sale.

Whether gems or not, the value of the leftovers must be weighed against the cost of warranties and guarantees Fletcher made throughout its long history, which Tenon has inherited.

They have been accounted for in Rubicon's bid and Hugh Fletcher and Luke Moriarty of Rubicon know more about them than anyone.

It was these legacy issues that caused Bruce Sheppard of the New Zealand Shareholders' Association to sell his shares at around $1.50 and miss out on the rise to $1.94 at the close yesterday.

The problem with Rubicon's partial takeover of Tenon is it leaves two sets of executives feeding at the trough, said Sheppard.

He said it should be a 100 per cent takeover to get rid of one of the Fletcher "rubbish dumps," and save overhead costs.

Shareholders have long been disillusioned with the Fletcher Challenge gravy train and analysts think that the much smaller Tenon is not doing enough to cut overheads.

It could be Rubicon's plan to do it, but Rubicon's own executive remuneration policies have been questioned by its shareholders.

Rubicon, now with the support of its 20 per cent shareholder Guinness Peat Group, is saying the play for Tenon is a long-term one and is about Rubicon's moving from having influence to control.

Few people believe that. The play for the so-called residual assets of Fletcher Challenge has many twists and turns to come was the consensus of everyone involved this week.

The breakup of Fletcher Challenge started with a move to so-called targeted shares designed to expose the value of the very different businesses in the group.

The value of these assets has risen sharply, care of Tenon's share price rise since the forest sale strategy was announced, but it is still in dispute.

THE TARGET

* Tenon Ltd, formerly named Fletcher Challenge Forests.

* Produces, markets and distributes wood products in NZ, Australia, Asia, North America and Europe.

* Products include plywood, lumber, solid wood mouldings, engineered products such as roof trusses.

* Preferred supplier to US home-improvement chains with over 900 stores.

* Seven processing facilities with capacity to handle almost 900,000m3 of wood a year.

* Market capitalisation: $179 million.