Forum Archive Index - July 2002

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Altkrimi

>
>
> Please help !
> 
> 1 RBC-share = ? FFS-shares ??
> 
> 


RBC owns some 492m FFS shares

There are 279m RBC shares on issue, and these comprise the forest 
(FFS shares) and biotech assets of the company.

So, on a per share basis, each Rubicon share 'owns' 492/279= 1.76 FFS
shares plus the biotech assets.

This gives us the equation:

 (RBC)= 1.76(FFS) + (Biotech Assets)

where RBC is the Rubicon share price
-and- FFS is the Fletcher Forest Share Price

The current RBC price is 75c and FFS is 24c, putting those figures 
into the equation gives us the valuation of the biotech assets:

75 = 1.76(24) + (Biotech assets)

=> Biotech Assets = 33c per share.

But are they worth that much?  According to the proposed FFS 
restructuring deal, Rubicon will received the equivalent of 37c per 
FFS share.  This gives a rather different valuation of the Biotech 
assets:

75 = 1.76(37) + (Biotech Assets)

=> Biotech Assets = 10c per share

That is quite a big difference, so which is correct?

According to the 17th June press release:
"Rubicon has agreed to acquire the Tahorakuri freehold forest estate 
from FCF for US$64m, in return for surrendering US$64m of the FCF 
shares it holds.  (i.e. 355m out of its current holding of 492m FCF 
shares)"

The way I see it, Rubicon is getting trees for FFS shares.  It is a 
good deal for RBC *if* they can sell their trees for $64m.  But can 
they?  I'm asking the question, I genuinely don't know, but I 
suspect that $64m as a net gain for the trees is optimistic.  If 
anyone out there has ideas on this, please speak!

continuing with the RBC press release:
"In a separate transaction, Rubicon will sell 131m FCF shares to 
SEAWI (a publicly listed Hong Kong company in which CITIC is a major 
shareholder) at a price of NZ37cps, realising NZ$48m in cash."

So here, RBC are getting 37c per share from CITIC.  We can't argue 
with that!  37c is 37c!

Now, let's say that RBC will be getting 37c for every share sold to 
CITIC, but only 25c of realisable value in the shares exchanged for 
the Tahorakuri trees and the small balance (6m) of FFS shares 
retained (492m-(355m+131m))=6m.   

This means that the FFS shares that RBC now holds are *really* valued 
at an average of ( 131*37c/492  + 361*25c/492 )= 28c

75 = 1.76(28) + (Biotech Assets)

This values the biotech assets at 26c per share.  This is the value 
that 'the market' is currently putting on the biotech asets.  Whether 
this is realistic or not I do not know.  But 26c per share or ( 
26c*279m= $72m )  is the market value of the biotech assets as I see 
it.

How does all this help us in deciding if RBC or FFS is the better 
forest investment exposure?  If you believe the 'true' value of the 
forest assets is somewhere around 30c per share, then buying FFS 
today at 24c would give you a 6c per share or 25% profit if this 
valuation is reached.

If the net realisable value of the Rubicon Tahorakuri trees comes out 
as the same 30c per old FFS share exchanged, then the Tahorakuri 
trees are worth $US64m/0.49*(30/37)=$NZ106m.

That dollar amount equates to 

$NZ106m/279m= 38c per Rubicon share

The cash from CITIC comes to

(37c * 131m)/279m= 17c per Rubicon share.

If we take the market value of the Biotech assets as 26c per share.

This gives the break up value of Rubicon as 38+17+26= 81c

This is a modest premium of (81-75)/75= 8% on the current market 
price of RBC.

Conclusion:
----------

If you are betting on an increse in the value of the forest assets 
then FFS is the one to buy.  Except, why would you buy a forestry 
company like FFS that pays no dividend, when you could buy an 
extremely well managed company like CAH?

 
SNOOPY

discl: no interest in FFS or RBC, hold CAH






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