Judge clears Rubicon's vote

By JIM EAGLES business editor

The High Court has kept alive Fletcher Challenge Forests' proposal to buy the 165,000ha of forests in the Central North Island Forestry Partnership (CNIFP).

In a reserved decision issued over the weekend, Justice Hugh Williams declined a bid to stop Fletcher's biggest shareholder, Rubicon, from voting its 17.6 per cent of the company's shares on resolutions approving the deal.

Since the main resolution will require 75 per cent approval, and opponents to the deal are generally reckoned to have close to 25 per cent support, had the judge's ruling gone the other way it would have effectively killed the plan.

Now all eyes will turn to the crucial shareholders' meeting tomorrow, with the voting widely seen as too close to call.

There was great interest in the sale on Thursday, to a party said to be favourable to the deal, of a parcel of 13 million shares - small beer in a company with 3 billion shares issued - because such a tiny shift could decide the issue.

Either way, the outcome of the meeting will not end the battle.

If the proposal is defeated, the Chinese Government investment agency Citic, which wants to replace Rubicon as Fletcher's new cornerstone shareholder, has other options.

It could, for instance, seek to buy the CNIFP itself and make a stand in the market for a 20 per cent stake in Fletcher, probably enough for it to exercise control.

But if the deal is approved then both Fletcher's second-biggest shareholder, Xylem, which brought the action on Friday, and Sir Ron Brierley's Guinness Peat group, which recently acquired chunks of both Fletchers and Rubicon, have further action in mind.

GPG's New Zealand head, Tony Gibbs, was coy about his plans last night, but GPG may be planning something today to persuade shareholders to vote against the deal.

Xylem already has legal moves waiting in the wings that are due to be discussed at a judicial conference on August 22.

One involves challenging the proposal in the package that would see Rubicon's shares bought back for cash and trees worth 37c a share, compared with the present market price of 23c, 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, is being unfairly oppressed by the deal.

Xylem's New Zealand lawyer Julian Long said whether these proceeded "will be largely governed by what happens at Tuesday's shareholder meeting".

Long said the action about voting rights had gone ahead first because it was more straightforward, required less time and needed to be settled before the meeting.

The argument before Justice Williams involved differing views on the combined effect of the Companies Act, Fletcher's constitution and the listing rules.

Under the rules a major transaction, defined as one having a value which exceeds more than 50 per cent of the company's assets, has to be approved by 75 per cent of shares.

Under the Companies Act a shareholder is not allowed to vote on a resolution to which they are a related party.

Both sides agreed that the purchase of the $1.4 billion CNIFP was a major one, so the resolution approving it would require a 75 per cent majority.

They also agreed that Rubicon was a related party and could not vote on the resolution covering the buyback of its shares, which, being much smaller, did not require a 75 per cent majority.

The key point was whether those two rules overlapped so that Rubicon would be barred from voting on the major resolution.

Justice Williams ruled that the company was within its rights to put the different parts of the deal as separate resolutions and Rubicon could be barred from voting only on those to which it was a related party.

The main resolution approving the deal, requiring the 75 per cent majority, did not mention the Rubicon buyback and so Rubicon was entitled to vote on it.

The judge also noted that the Stock Exchange Market Surveillance Panel had on Thursday, after initially declining to get involved, ruled that the Fletcher's meeting notice met its listing requirements.

"Put shortly," he said, "the NZSE ruling . . . authorises Fletcher Forests to permit Rubicon to vote on Resolution 1, whatever doubts there might otherwise have been on that score."

Fletcher chief executive Terry McFadgen welcomed the court ruling - which, he said, had not come as a surprise - "because it now puts the decision where it should be . . . with the shareholders".

He said he was happy with the scrutiny and debate that had surrounded the deal "because it is a significant and complex proposal which deserved serious analysis and it has got it".

"I see this as representing something of a coming of age for the New Zealand investment scene, whatever the outcome, because of the quality and vigour of the debate, which has occurred."

He said he was hopeful the deal would be approved "because, on balance, we believe it is right for the company".

"It has some highly attractive aspects, and some less attractive, but taken overall it will set the company up for the future."

And which way does he think it will go? "We'll find out on Tuesday".