Rubicon pays 'bargain' price for ArgborGen control

Monday 27th November 2017

Rubicon says it got a bargain with the US$29 million price to buy out partners in ArborGen after refusing to waive provisions that would have allowed its former co-investors to run a formal sales process for their stakes in the biotech seedling firm.

In June, the NZX-listed forestry investor took full ownership of ArborGen, agreeing to pay International Paper and WestRock in a deal that placed a fair value of US$124 million on the seedling firm. Rubicon's annual report, released after trading closed on Friday, shows the deal resulted in a "bargain purchase gain" of US$51 million and that the purchase price didn't reflect fair value because there wasn't an orderly sales process.

"This was due to the unique nature of the then governing ArborGen shareholders’ agreement, which included strong pre-emptive rights over existing partners' interests in the event of a sale, and also minority veto rights in favour of the remaining partner," the annual report said. "Given Rubicon was not prepared to forgo these protective provisions, this, in turn, meant that the exiting partners were effectively unable to run a sales process for their respective shareholdings."

Auditor KPMG noted the ArborGen deal as a key audit matter, saying the accounting was complex and that fair value assessments had a wide range of potential outcomes due to their sensitivity to various assumptions.

"Based on our own understanding of the ArborGen business and our own assessment of the valuation ranges, we are satisfied that the fair values determined by management are supportable," the auditor's report said.

Rubicon shifted its balance date to align with ArborGen, and reported a net loss of US$6 million in the 15 months ended Sept. 30 on revenue of US$115 million.

Auckland-based Rubicon injected US$6 million of capital into ArborGen and has advanced a US$5 million working capital funding line and is undertaking "a complete review of the strategic, operating and financial plan necessary to ensure ArborGen meets its promise" which it expects to be done next year, chair Stephen Kasnet said in the report.

Kasnet noted the new Labour-led administration has signalled new policies to support the forestry sector and expand afforestation.

"We have yet to see the detail (eg species, regions, etc) of this policy, other than that a target of 100 million trees per annum being planted in NZ has been widely stated," Kasnet said. "ArborGen-NZ currently produces around 16 million tree stocks per annum, so there is clearly upside for it should this policy be implemented in a managed manner."

Rubicon also scaled back its exposure to Tenon, teaming up with US and New Zealand investors to buy the Clearwood manufacturing business near Taupo.

The shares fell 1.6 percent to 18.5 cents on light turnover, having dropped 15 percent so far this year.

(BusinessDesk)

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