Old economy legacy disguises new kid Rubicon's worth

By Nick Stride

Friday 13th October 2000

BLUE SKY: Rubicon will inherit Forests' biotechnology assets

Fletcher Challenge has long complained the value of its intellectual property hasn't been recognised by investors. That situation is unlikely to change in the near future.

Rubicon, which will not come into being until FCL shareholders vote on separation at the end of January, serves a triple purpose.

In the short term it will hold the Challenge petrol station chain, which Fletcher Energy buyer Shell cannot own for competitive reasons, and a 14% stake in New Zealand Refining.

Chairman Roderick Deane said it was not intended those should be part of Rubicon's assets in the longer term.

It will also have a sizeable stake in Fletcher Forests, presumably another non-core asset. It will take a $90 million placement of Forests new and preference shares and will sub-underwrite, up to $170 million, Fletcher Forests' $427 million rights issue.

The yet-to-be-disclosed issue underwriter will in effect provide Rubicon with bridging finance for at least the period between the issue during November and mid-March when it takes delivery of three million Capstone Turbine shares. Until these, or at least some of them, are sold it won't have enough cash to pay for its obligations to Forests.

It will have the same number of shares on issue as Fletcher Energy division and they will be issued to Fletcher Energy shareholders on a one-for-one basis as part consideration for the division's acquisition by Shell and Apache Corp.

Rubicon's ongoing role will be to develop and commercialise intellectual property.

"Core" holdings will be the Forests division's biotechnology assets - including a stake in the ArborGen "designer tree" joint venture and a small stake in Genesis Research - and Forestadora Tapebicua, an Argentinian joint venture producing genetically engineered eucalyptus hardwood products for the North American building markets.

Analysts said the value that should be given to these will be hard to determine for some time. Dr Deane this week said ArborGen wouldn't make a profit for six to eight years.

Much will also depend on how Rubicon reinvests the proceeds of the sales of Challenge, New Zealand Refining shares and Fletcher Forests shares. These could amass a $320 million war chest.

Rubicon's ongoing role will be to develop and commercialise intellectual property.

The choice of the new vehicle's name lends itself to various interpretations.

Rubicon was the name of the stream that marked the northern boundary of the Roman Empire. Julius Caesar arrived there in 49 BC with troops of his Thirteenth Legion. At his back was the relative safety of his province of Gaul. Ahead lay the risk of defeat and execution as a traitor. But victory would save the decadent and faction-ridden Roman Republic from collapse. He crossed, muttered alea iacta est (the die is cast) and founded the empire that ruled Europe for 500 years.

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