Tenon smoke clears to reveal dense fog

By Shoeshine

Friday 11th June 2004

Nothing to do with the Fletcher Challenge empire, the old saying goes, is ever simple. Much the same can be said of Guinness Peat Group New Zealand. Nothing GPG's local operation gets involved in, it could be added, is ever a friendly affair either.

GPG New Zealand director Tony Gibbs at last got to hang a couple of long sought-after scalps on his wall this week, namely those of Tenon chairman Sir Dryden Spring (far right) and director Warren Larsen.

But a few other directors he has long criticised, if only by implication, are still very much at large.

Following Rubicon's successful move to control, Gibbs is Tenon's chairman. Sitting around the boardroom table with him are former Fletcher Challenge chief executive Michael Andrews, Rubicon chief executive Luke Moriarty (right), former lawyer and investment banker Michael Walls and professional director Rodger Fisher, a former chief executive of Owens Group.

Accompanying Gibbs at Rubicon's top table are Moriarty; another former Fletcher Challenge chief, Hugh Fletcher; chairman Stephen Kasnet; and Bill Hasler.

With these interesting configurations in place, the attention of shareholders in all three companies GPG, Rubicon, and Tenon can now turn to what exactly has been achieved.

GPG bought into Rubicon with the intention of acting as the catalyst for an undefined Grand Plan for the consolidation of Central North Island forestry, now obviously a dead duck.

It then bought itself a long, bloody and eventually fruitless legal battle with fellow shareholder Perry Corporation, trading blows along the way with Moriarty, Andrews and Fletcher.

An offer to take its holding to a controlling 50.1%, initially ruled non-compliant by the Takeovers Panel, failed.

It was also instrumental in securing a shareholder "no" vote to Tenon's plan to buy back the giant Kaingaroa forests, despite the deal's favourable treatment of Rubicon.

GPG originally spent $56.1 million buying Rubicon and Tenon shares. The value of its Rubicon stake is now $47 million and its Tenon shares are worth $7.8 million.

The management time and costs ploughed into its forests venture have been phenomenal. So it can scarcely be said this has been a wildly successful foray as far as GPG shareholders are concerned.

Rubicon's rationale for increasing its Tenon investment from 19.9% to 50.1% is also hard to fathom.

The original plan, when Rubicon was created as the dustbin of the Fletcher Challenge breakup, was to dispose of a disparate ragbag of assets and focus on forestry biotechnology.

It all started well with the sales of the Challenge petrol station chain, the Brisbane fuel terminal and shares in Capstone Turbine Corporation, leaving Rubicon with its Tenon shares and biotech interests.

But somewhere along the way the old Fletcher Challenge empire-building gene seems to have re-emerged.

The expectation among shareholders when Tenon sold its forests and started distributing the cash was that Rubicon would hand its share back to its owners. The decision to use it instead to go for Tenon control came out of the blue and has never adequately been explained.

The closest Shoeshine's inquiries have come to eliciting a rationale is a rather lame argument that 19.9% is neither here nor there; if you're going to have such a big exposure to a company, you might as well have control.

This is unconvincing. Fonterra, for example, doesn't feel it needs to control Wrightson, in which it has 19.9%. Nor does Wrightson feel compelled to control Genesis Research & Development, in which it has 15.3%.

Insisting on having control is tantamount to saying the existing board and management aren't steering the company down the path of maximum value.

But Rubicon supported Tenon's bid to buy back Kaingaroa. When that failed it supported the Tenon board's view that it was better to get out of forest ownership altogether and concentrate on wood processing.

There has been no suggestion the residual operation's game plan was flawed or its cost structure too high, or any indication of how things will be done differently now Rubicon is in the driving seat.

Shoeshine suspects investors, and institutions in particular, are starting to get a little weary of directors and managers who use shareholders' money to play corporate control games that create acres of headlines but little or no value.

If Rubicon and GPG don't want to be seen this way they should get on and explain their plans to the market.

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