Forum Archive Index - November 2000

["G Stolwyk" <stolwyk@wave.co.nz>]

 Hugh,

 

There are at least 3 scenarios:

 

1.Rubicon's valuation is correct and the market has allocated a positive theoretical value to the rights. After new  shares are allocated, the share price will not fall.

 

Answer:There is an exceptional amount of rights available and the theoretical value is low. The investor has a choice: Will he buy the rights or buy existing shares or will he not buy at all?

In such conditions the price of rights may not be high. In any case there are not that many keen investors around, are there?

How many rights will go to the underwriter?

The investor may conclude that the value of these rights approaches zero level!!

 

 

2. The investor may ask whether Rubicon's valuation is too high; if so, then the share price could fall further.

Hugh, you want to sell the rights? Suggest you find out what the broker's fee is; perhaps your rights may have to lapse!  

 

 

3. One global player will buy the rights. 

 

The Chinese will be very interested but would rate any competition.They have a lot to gain if they can get majority control first and then at a later stage make a takeover offer.They can then drop any litigation. Due to any future contracts, FLB holders and the owners of Kawerau's pulp and paper mills may have a stake in the outcome as well.

 

The Chinese have the backing of the government; If they think that there is no competition, then, they could take action which will have the effect of bringing down the existing share price.They could  then buy rights @ 0.001 cents each and even offer to pay the sellers' brokerage within  limits.

They could proceed with buying up further (lapsed) rights at a higher price from the underwriter!

 

 

4. Two or more global players enter the market. If they were sure that there was strong competition, then one of the parties could stand in the market for rights at an early stage.

In that case the rights could be worth something. If there is no early raid on the rights then the existing share price can only go down so far before the competitor will step in.

 

 

Summary. In this chess game the Chinese have more to gain than anyone else, I think. However, if the price is right,they could sell out later.                                                                                                                                                                          A new long term investor may decide to wait with entry : The existing share price could fall below the total cost of buying the rights and taking these up.

If I were very keen to invest in FFS, then on balance, I probably would wait for further developments; at some stage fast action may be required and I would have to keep in touch with the market.

Obviously, I could miss out on such an investment. However,there may well be another more profitable company to invest in!

 

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Disclaimer.

I am not a holder of FSS shares.Contents of this email are my opinion.Developments may cause a change of  this opinion.

Accuracy or completeness cannot be guaranteed. Any claims for damages arising from the reader's action or from communicating the contents of this email to others will not be accepted. No person is asked to buy, hold or sell shares in any company,trust or other instrument.

 

Till later, Hugh!

 

Gerry