Rubicon talks tough on forests value gap

By PAUL PANCKHURST and PAM GRAHAM

Fletcher Challenge Forests' biggest shareholder, Rubicon, is spreading the word that it wants the forestry company to move more quickly to close the gap between share price and asset value.

But the forestry company's chief executive, Terry McFadgen, yesterday said Rubicon had not raised the issue with the company.

Market watchers are puzzling over what Rubicon is up to.

When chief executive Luke Moriarty announced a week ago that Rubicon had spent $14.5 million to lift its Fletcher Forests shareholding by 2.3 per cent to 19.9 per cent - the takeover borderline - he told the Business Herald that Rubicon was "particularly keen" to see the value gap closed.

An indication of the size of the gap: Fletcher's first big asset sale in January indicated a total asset value equivalent to $1.85 a share when the shares were trading at $1.

Market sources say Rubicon is spreading the word that it wants more action.

The company last month sold 8940ha of mature trees - 8 per cent of its estate - for $120 million, but its share price did not lift, despite the company's plans to return that money, and more, to shareholders.

The forestry company is criticised by some for so-called "slicing and dicing" - picking off a small part of its forestry estate instead of trying to sell the whole.

Besides asset sales, the stated strategy is to cut costs, lobby for more co-ordinated selling by the New Zealand forestry sector and focus on the high-return parts of its operations: processing, marketing and distribution.

Some observers ask whether Rubicon's talk is - for whatever reason - intended to depict Rubicon and Moriarty as driving the action.

One forestry analyst said there was no "silver bullet" for closing the value gap - and nor would all of the forestry company's assets be as easy to sell as the cutting rights offloaded to UBS Timber Investors in the January deal.

The tone of Rubicon's talk is seen as fitting nicely with the wishes of one major Rubicon shareholder, Guinness Peat Group.

GPG is widely perceived as stuck in Rubicon, with no immediate prospect of profiting from last year's raid on the investment company's share register.

GPG's New Zealand head, Tony Gibbs, used words like "supportive" and "comfortable" in connection with Rubicon's share purchase.

Those words suggest a common interest but not an alliance.

During last year, Gibbs slowly roasted Rubicon and Moriarty over issues such as Rubicon's failure to disclosure executive pay arrangements.

The attitude of GPG's long-time adversary, Perry Corporation, to the at least partial thawing of relations is unknown.

Like GPG, Perry has a stake of just under 20 per cent in Rubicon.

Phoned in New York, Perry managing director Carl Berg said he was sorry, but would not break the hedge fund's 15-year-old rule of not commenting.

Another factor in the mix: Justice Judith Potter's yet-to-be issued decision in the case where GPG wants Perry to forfeit or sell most of its Rubicon stake as a punishment for allegedly hiding its presence on the company's share register.

Sharemarket analysts and brokers are speculating, too, on whether GPG and Rubicon could be classified as associated companies - meaning Rubicon's 19.9 per cent Fletcher Forests stake, combined with GPG's small direct holding in Fletcher Forests, would take the pair over the 20 per cent threshold requiring a takeover bid.

However, a senior lawyer said the publicly known facts did not suggest the pair were associated in terms of the takeover rules.

An investment banker called it "an interesting academic question".

An oddity to throw into the mix: yesterday's reported sighting at the Stamford Plaza hotel of Stephen Hurley, once a key player in the Fletcher Forests saga. Hurley helped block last year's $1.36 billion central North Island forests deal as the then president of Xylem, the US fund manager that controlled a stake in the forestry company.

The Business Herald asked Forests' McFadgen to comment on Rubicon's talk of faster action.

He said: "I don't think there is any disagreement about strategy . . . We have undertaken one cutting rights sale. We are currently focused on getting that completed."

For his part, Moriarty said it had been logical and "economic" for Rubicon to increase its holding in Fletcher Forests - because it increased the capital return.

After spending $14.5 million on lifting its stake, Rubicon would get 20 per cent of the $140 million returned to shareholders, rather than 17.5 per cent.