GPG's swoop on Rubicon causes ruckus at Exchange

By NZPA

Thursday 4th July 2002

Guinness Peat Group's (GPG) overnight swoop to grab 19.9 percent of Rubicon caused market ructions that rekindled memories of Lion's midnight raid on Montana last year.

GPG's Tony Gibbs also suggested the Fletcher Forests-Citic $1.3 billion deal to purchase the Central North Island Forestry Partnership (CNI) would collapse.

He strongly hinted that if it proceeded, GPG would break Rubicon up.

The 50.3 million Rubicon shares were bought at 75 cents each, a 13.6 percent premium over yesterday's price. On market Rubicon closed today at 71 cents, up 5 cents.

But the initial controversy was over how Sir Brierley's company nabbed an 18 percent stake last night through broker JB Were. GPG started yesterday with nearly 2 percent of the company.

Some brokers suggested GPG may have to launch a full takeover for Rubicon because of the alleged rule breach.

Stock Exchange rules require a member firm that receives an order to buy more than 10 percent of a company to "bid in the market for 20 percent of that order from other member firms".

That would mean GPG would have to buy another 3.6 percent of Rubicon on market which would take it over 20 percent of the company, thereby triggering the Takeovers Code.

The Stock Exchange received formal complaints from other unnamed brokers and said it was investigating.

Both JB Were and GPG said they had advice that the way the deal had been done was legal.

Last year, Lion Nathan was forced to abandon a hotly contested stake in Montana after its midnight raid was red-carded by the exchange's Market Surveillance Panel.

This raid will be the first major test for the exchange's new chief executive Mark Weldon and observers will be assessing which way he swings on market regulation.

GPG director Tony Gibbs denied the raid amounted to a stand in the market.

"The purchase was done absolutely squeaky clean following the rules and Weres took advice and so did we all the way along."

He said there was no issue of having to make a full takeover.

JB Were's head of investment banking in New Zealand, Paul Harris, said the relevant rule was a Stock Exchange regulation -- rather than a Takeovers Code rule that had legal status.

JB Were's legal advice was that the regulation was only intended to apply to stands in the market where there was a wide spread of shareholders.

Mr Harris said JB Were approached only "a small number of selected institutions" and acquired the shares off market. He declined to say how many.

"Our legal advice was unequivocal. It was that section 6-17 did not apply to that situation."

He said other brokerages were looking to share the transaction profits.

But one broker, who did not wish to be identified, said he knew of a client with just 200,000 shares who was approached last night.

He said it was unprecedented that a 20 percent proportion of a stand had not be conducted on market. He suggested it had been an oversight by JB Were in the rush to do the deal.

"It's black and white in the listing rules," he said.

Mr Gibbs told NZPA that GPG saw the Rubicon leg of the Fletcher Forests Citic deal to purchase CNI as very good for Rubicon.

Rubicon is getting the equivalent of 37 cents per share for its 17.6 percent holding in Fletcher Forests against the current price of 25 cents.

But Mr Gibbs doubted the transaction would proceed.

"If the Rubicon deal actually occurs, then you'd have to say `what's Rubicon's role in life?'. I don't know."

Asked if Rubicon's assets were worth more than its market capitalisation, Mr Gibbs declined to comment.

"We suspect that the total Forests-Citic deal will most likely collapse under its own weight and from GPG's position, we are comfortable with our position either way."

Mr Gibbs said that it appeared a number of Forests shareholders were opposed to the CNI deal whereby Citic would end up with a 35 percent stake in Forests after CNI had been repurchased from the receivers.

Mr Gibbs noted Forests' 7 percent owner Xylem opposed the deal and its representative on the Forests board, Stephen Hurley, resigned.

Macquarie Equities senior analyst Arthur Lim said today's deal was a classic Sir Ron Brierley play of buying undervalued assets. He valued Rubicon at 90 cents/share currently and $1/share if the CNI deal proceeded.

He also believed Fletcher Forests was being valued on current log prices which are at 30 year lows. Based on the long-term average he valued Forests closer to 60 cents/share.

"Fletcher Forests is severely undervalued," he said.

He was sceptical about breaking up Rubicon, saying its biotech assets would not get a good price in the current environment.

If the CNI deal collapsed, Mr Lim said it was likely Citic would buy Rubicon's stake in Forests anyway together with a direct stake in CNI.

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