Rubicon scapegoat in Fletcher failure

By CHRIS DANIELS forestry writer

The strained relationship between Fletcher Challenge Forests and its biggest shareholder turned into bitter recrimination yesterday as Fletcher blamed Rubicon for the collapse of its $1.4 billion forest deal.

Fletcher chairman Sir Dryden Spring identified shareholder opposition to the premium price Rubicon was to obtain as one of the main reasons the whole Central North Island Forest (CNIF) deal failed.

At a media briefing yesterday, Sir Dryden outlined how necessary Rubicon's approval had been for the CNIF deal succeeding.

"We worked very hard with a number of proposals which tried to accommodate some of Rubicon's needs, and would have given all shareholders an equal opportunity of getting some cash out, but the bottom line was that unless Rubicon agreed the receiver was not going to sign a contract with us.

"We couldn't even get out of the starting blocks without their support."

He said the company had hoped that, despite that, it would have been able to convince enough shareholders to support the CNIF deal.

"We knew that the Rubicon thing did two things - first that it was not going to be popular and we didn't like it any more than shareholders. And we knew it was going to cause a debt level which for two years was going to be higher than we wanted it to be."

Sir Dryden said he did not know the intentions of its cornerstone shareholder.

"Does it want to get out of Fletcher Forests or does it want to stay in? Does it want to support further investment in forestry in New Zealand or does it want to invest in forests and other activities?"

When asked if he felt secure in his position as chairman following the failure of the CNIF deal, Sir Dryden said the idea that directors should "fall on their swords" if shareholders rejected such a proposal could be dangerous.

"[Tuesday's] event was a wonderful exercise in corporate democracy - where we took the proposition and at the end of the day shareholders had the opportunity to decide it and we respect that decision."

Both Sir Dryden and company chief executive Terry McFadgen referred to the healthy 71 per cent shareholder support for the CNIF deal, in the face of concerted and organised opposition.

"If you put something to shareholders and let them decide, if it doesn't get up ... then automatically a vote of no confidence, why would any director on anything that was a little bit marginal even take the risk of putting it in front of shareholders?"

If the CNIF deal had been approved, Rubicon would have been able to sell its 17.6 per cent Fletcher stake for cash and a forest, with its shares valued at 37c each - a hefty premium on shares usually trading around 25c.

But Fletcher shareholders rejected the whole deal, with the plan failing to reach the 75 per cent approval vote needed at Tuesday's special shareholders meeting.

Talk that its involvement has somehow jeopardised the deal will infuriate Rubicon, which has so far argued that without its involvement the deal may never have even got as far as it did.

Rubicon chairman Michael Andrews issued a statement discussing the deal yesterday, saying the transaction "was a good one, which would have increased the net asset value of Rubicon to more than $1 a share".

"However, we now need to put this FCF shareholder vote behind us, and look to other ways in which we can bring value to our strategic 17.6 per cent shareholding interest in FCF. We will obviously be looking at alternatives over the coming period."

Shareholders Association chairman Bruce Sheppard said he was not "baying for the blood" of directors, but they did need to "get back to the trenches", run the business well and regain the confidence of shareholders.

As to Sir Dryden's contention that Rubicon's 37c a share exit was the prime reason for the failure of the CNIF deal, Sheppard said without that aspect, shareholders may have not even been interested in the plan.

The good deal enjoyed by Rubicon had attracted attention from shareholders, who then went on to more thoroughly investigate other aspects of the deal, including the introduction of Citic and Seawi into Fletcher, and the huge amount of debt it was incurring in order to buy the forest.

GPG director Tony Gibbs, whose company owns 19.9 per cent of Rubicon and a small stake in Fletcher, said the high level of debt Fletcher wanted to incur to buy the forest was what scuppered the deal, not Rubicon.

He would not reveal the company's next moves.

"We will wait and see. I think there are many more steps in this dance yet."

* Shares in Fletcher Forests closed down 1c at 22c yesterday, while Rubicon shares lost 2c, finishing the day at 70c.