Forum Archive Index - August 2002

["Gerald Dreaver" <gdreaver@paradise.net.nz>]

Thanks for your replies.

Snoopy:

The US$650m appears to be the "second-best bid". The receiver has indicated
that it's the lowest acceptable price and some other bids have been in this
vicinity. Xylem itself seems to have thought the price was acceptable
earlier this year, when it indicated that it wanted to be part of a deal.
Why only a "trickle" of other bids? I presume that the number of potential
bidders aware of this opportunity is not huge, and that some are not
prepared to put resources into pursuing a bid given that FFS would be in a
position to out-bid them, and especially when a realistic offer is already
on the table. FFS has indicated that the value of the forests to it is
US$732m, plus marketing and strategic growth benefits. That's a nice chunk
of benefit for shareholders.

Shareholders Association:

I'm confused by the statements about the increase in debt. Apparently FFS'
liabilities were NZ$1,375m and its equity was NZ$1,584m at the end of June.
The proposed deal seems to about double the debt, increase the value of
assets by a greater amount than the increase in debt, and to involve a cash
injection of US$200m from SEAWI. If the The Rubicon deal seems to leave
equity unaffected. The figures given by the Shareholders Association don't
make a lot of sense. Even if the absolute debt went up 3 or 4 times, the key
point is the debt/equity ratio, and the company's ability to keep paying its
liabilities, is it not? The company has advised that if prices in all
markets DO fall by 10% below the conservative prices used in the FFS
analysis, it will sell some minor assets rather than defaulting.

I'm also confused by the comments re: SEAWI. Surely SEAWI will have every
incentive to help FFS into China for the sake of its own capital gain and
dividends? Owning 35% of the company, the incentive will be significant. And
surely any marketing into China would "be at a cost"? The governance
arrangement seems to ensure that SEAWI would not be able to demand more for
such services than any other provider.

I'm not too sure about the US$300m debenture thing paying off either. What
are the chances of a buyer coming along and paying that kind of money? I
thought it was accepted (Xylem claims it so), that FFS is the natural
purchaser. The "doing nothing" option proposed by the Shareholders
Association would presumably open up the risk of another bidder coming in
and, especially if it has its own synergies (eg if it's a major
international forestry syndicate), doing its own processing.

As for GPG - this minor shareholder seems to oppose the deal only because
they want Rubicon, in which they have a bigger stake, to hang on to the
trees, not because the deal's bad for FFS shareholders generally.

Re: Brian Gaynor - he seemed to think all NZers generally would suffer from
the deal, because foreign investors would gain a larger share of NZ assets.
He implied that New Zealand Rubicon shareholders would regret voting for the
deal for this reason. However, a sale of the forest would transform NZ
wealth, not eliminate it. I think Rubicon shareholders would be smarter to
think: where's the best place for my savings to be invested? In a forest
that fits awkwardly in this company, or in some other investment, eg adding
value to Rubicon's research ideas? That could well add more value to NZ.

I may well be wrong about all this - I'm not a merchant banker or a person
of any great sharemarket experience. Please feel free to put me right if you
disagree, or let me know if you think I've made any valid points.


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