Fletcher Challenge Sets Course For Its Three Divisions
October 10, 2000
A programme to complete the Fletcher Challenge Group restructuring and separation of the remaining three targeted share
Divisions was announced today by Dr Roderick Deane, Chairman of Fletcher Challenge Limited.
In announcing the outcome, Dr Deane said “We indicated when we announced the sale of the Paper Division in April that
the Board would continue to evaluate all potential outcomes for the Building, Energy and Forests Divisions, and this has
now been completed. The Directors, together with the senior management and external advisors, have been involved in a
comprehensive review and evaluation process to determine the announcements we are making today. Our over-riding goal in
the process has been to maximise value over time for shareholders whilst adhering to a tight timeframe. I can say
unequivocally that the Board is unanimous in recommending these restructuring outcomes, as the best value for
shareholders, and a good outcome for New Zealand.”
Recommendations to Shareholders:
Will be separated as a stand-alone publicly listed entity named Fletcher Building
Will be a stand-alone publicly listed entity named Fletcher Challenge Forests
Will be sold to Shell and Apache Corporation for total transaction value of $4.6 billion (US$1.84 billion)
And a new New Zealand-based company, Rubicon
Will be established to commercialise selected emerging technologies
Will play a key role in facilitating the Group restructuring process
To: BUSINESS EDITOR From: GINNY RADFORD
TRANSITION COMMUNICATIONS MANAGER
Fax: AUTO Telephone: 64-9-571 9812 – Office
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Fax: 64-9-571 9871
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immediately on telephone 64-9-525 9000. Further information on Fletcher Challenge Limited can be viewed at the Fletcher
Challenge World Wide Web site, at http://www.fcl.co.nz
It is intended that full information and disclosures on each of the recommendations will be provided to shareholders in
December in preparation for the shareholder approvals in late January, 2001.
For Building Division shareholders
A stand-alone listed company, with a clear focus on the New Zealand building arena
Realignment of the portfolio towards core activities, including ‘new growth’ opportunities refocused on New Zealand
A final dividend of eight cents per share is declared to shareholders of record on 27 October, payable on 9 November,
For Forests Division shareholders
A stand-alone listed company, targeted to the marketing, processing and management of New Zealand-grown Radiata
A re-capitalisation of the company, through a fully underwritten pro-rata 2:1 rights issue of Forests preference
shares at $0.25 per share, raising $427 million of new equity, with cash to be paid in full in December 2000.
Rubicon will also subscribe for a placement of $90 million of Forests ordinary and preference shares
Forests’ biotechnology and South American assets will be sold to Rubicon for $80 million
For Energy Division shareholders
US$3.34 per share (NZ$8.30 at Monday’s foreign exchange rate of 0.4025) in cash 8.30
An entitlement to receive 1 Capstone share for every 70 Fletcher Challenge Energy shares held (equating to $1.72 per
Fletcher Challenge Energy share at a foreign exchange rate of 0.4025 and Friday’s Capstone share price of US$48.50)
1 share in the new entity – Rubicon – for every Fletcher Challenge Energy share held (valued at approximately $1.20
The total value of the transaction represents a premium of 43% over yesterday’s Fletcher Challenge Energy closing share
There will be no final Fletcher Challenge Energy dividend
The acquisition by Shell and Apache is subject to regulatory consents in New Zealand (including the Overseas
Investment Commission and Commerce Commission), Australia, Canada, the United States, and Brunei.
The new company, Rubicon
Will be established, on separation, as an active business with a defined strategy to commercialise emerging new
technologies that have high-growth, high-margin potential.
Will play an important role in the restructuring process, by supporting the recapitalisation of the Forests Division,
and acquiring some Energy assets.
Will initially consist of:
The biotechnology assets and South American forestry assets acquired from the Forests Division for a combined price of
The Challenge! service station network of strong New Zealand small businesses, and the Brisbane, Timaru and New
Plymouth terminals which support them, acquired for $20 million
14% of New Zealand Refining Company shares
$20 million in cash
An alliance with Genesis Research and Development in relation to bioremediation
Commitments to subscribe for a placement of $90 million of Forests shares and also to sub-underwrite $170 million of
the Forests rights issue
The indicative timetable, which may change as regulatory and Court processes require, is shown below. Shareholders will
be kept informed of any changes.
Mid-October Commerce Commission decision on the Shell application in relation to Energy
2 November Annual Shareholders’ Meeting, which will also consider Forests rights issue
Mid-November Rights trading commences
Early December Rights offer closes
Late December Documentation mailed out for Separation meeting
Late January Shareholder separation meeting and vote on recommendations
Early February Separations completed
The entire separation programme, which is subject to shareholder approvals, will be undertaken by way of a
Court-approved plan of arrangement, as was the case with the sale of the Paper Division to Norske Skog.
“The Board and management are pleased and satisfied about the outcomes announced today,” said Dr Deane. “We believe they
will provide the best value to shareholders, will retain some key New Zealand activities, and will establish successful
and effective New Zealand-based businesses in building, forestry and the new economy. It will also establish our energy
business in a position of scale for the future. Importantly, this outcome will retain a New Zealand focus for activities
which have been a part of the New Zealand economy for many years, and also provide the catalyst for commercialisation of
exciting new technologies from a New Zealand base. You have had a glimpse of the future. And it is bright”
Fletcher Challenge Forests Limited
A full range of Forests (“FFS”) alternatives was canvassed with leading international forestry players – both industry
and financial. The value implicit in those alternatives was compared with the value that could reasonably be expected to
be achieved through a stand-alone Fletcher Challenge Forests.
“It is clear that several issues have been impacting Forests Division’s value, both in terms of its current share price
trading range and also the value ascribed to it by financial and trade buyers, “ Dr Deane said today. “However, as long
as these issues are addressed quickly, we have no doubt that the stand-alone value of Fletcher Challenge Forests will be
well in excess of all of the alternatives we have considered.”
These issues are:
Excessive financial leverage
The need to narrow the business focus
Concerns as to the future of the Central North Island Forest Partnership (CNIFP)
An improved cost / operational improvement focus
A key management appointment outstanding
In terms of management appointments, Terry McFadgen will take up the position of Chief Executive of Fletcher Challenge
Forests, filling the role that has been vacant since July of this year. Mr McFadgen has been Chief Executive of the
Building Division for the past five years, and will bring to Forests a track record of successful leadership in a
closely related and aligned industry. Mr McFadgen’s skills and experience are particularly suited to the issues Fletcher
Challenge Forests is addressing, and he will take up his new role immediately.
In relation to the financial leverage of the Division, the Board’s recommendation is that Fletcher Challenge Forests be
re-capitalised by way of a fully-underwritten pro-rata 2:1 rights issue of preference shares at $0.25 each, raising
approximately $427 million. In addition, Rubicon will subscribe for $90 million of Forests ordinary and preference
shares at an ex-issue price of $0.40 per share which is equivalent to $0.70 per share cum issue (see rider). These new
capital raisings will have a positive impact on the financial position of the Division, improving the debt to total
capitalisation from 34.7% to 13.5%. (Refer attached proforma balance sheet).
Fletcher Challenge Forests may consider using part of the proceeds arising from the recapitalisation to reduce the
senior bank debt of the CNIF Partnership, provided that CITIC makes the same reduction. Receipt by the banks of these
payments should allow them to grant a waiver of the event of default in respect of an earnings/interest ratio covenant
which is otherwise expected to occur in December 2000.
“Having completed a comprehensive evaluation process, the Board strongly believes that more value will accrue to
shareholders by re-capitalising Fletcher Challenge Forests in this manner, rather than by selling the entire Division to
an industry buyer or, alternatively, by selling part or all of the forest estate to effect the re-capitalisation. The
price environment for timber and other Fletcher Challenge Forests’ products is currently at a relatively low level in
historical terms, and this was reflected in the offers received from third parties. The Board is not prepared to
recommend to Fletcher Challenge Forests’ shareholders, asset sales at current prices, “ Dr Deane said.
In terms of narrowing the business focus, Dr Deane explained: “Moving forward, Fletcher Challenge Forests will focus on
its core operations and strategies surrounding:
expansion of its existing marketing and distribution activities in New Zealand, Australia, North America, Japan and
its value-added processing operations
New Zealand forest management activities
its New Zealand Radiata resource
Current strategies and assets that fall outside these activities, including our biotechnology assets and our activities
in South America, are deemed to be non-core and are being sold to Rubicon.”
However, the recently-achieved certification by the Forest Stewardship Council is a globally-recognised benchmark for
the sustainable management of forests. This will provide a significant marketing opportunity in those markets which
demand environmental responsibility.
The Directors have agreed that Fletcher Challenge Forests will sell its biotechnology and South American forestry assets
to Rubicon for $80 million. “We believe this reflects excellent value for the intellectual property that the Division
has developed to date. In addition to achieving value in the sale, Fletcher Challenge Forests will be relieved of an
existing and on-going financial commitment of some $40 million necessary to fund our share of ArborGen’s cash
requirements over the next 4 years. As part of the sale, Rubicon will agree to continue to make available to Fletcher
Challenge Forests, at market value, the superior clonal resource developed out of the Te Teko laboratory in the Bay of
Plenty. Overall this is an excellent value outcome for Forests Division shareholders, and also brings with it an
important first step in the recapitalisation of the company,” Dr Deane confirmed.
In relation to continued partner issues in the CNIFP, Dr Deane said: “Despite best endeavours, to date we have been
unable to reach agreement with CITIC on outstanding issues. These issues are complex and difficult to resolve,
particularly with the overhang of the Group restructuring process. We are determined to resolve these issues with our
partner, either by way of mutual understanding, binding arbitration or if necessary through court proceedings. If we are
not able to achieve that, then clearly moving to split the assets in the partnership - again either by mutual agreement
or by way of court proceedings – is another alternative open to us,” Dr Deane continued.
In relation to operational improvement, as the Forests Division is narrowed down to the core operations identified,
there will continue to be opportunity for both cost reduction and operational improvement, building on the successful
record of the past few years. “ We are targeting a further reduction in annual non-forest operations costs of $15
million to be achieved over an 18 month period. These reductions will align the company closely with best-practice
international benchmarks in this area as well as in its forest operational areas. In addition, a sustainable reduction
in working capital will be targeted over the next six months, and a capital productivity program introduced.” Dr Deane
Rider: Rights issue
Approval for the rights issue (which will require an affirmative vote from more than 50% of all Fletcher Challenge
shareholders voting together) will be sought at the Annual Shareholders’ Meeting on 2 November 2000. As part of that
rights issue, Rubicon has agreed with the underwriter to acquire a portion of any rights issue shortfall up to a maximum
of $170 million. Normal conditions apply to the underwriting agreement. Included is a “market out” condition if there is
a decline of 10% or more in the NZSE40 Gross Index over five consecutive days. In addition, upon the separation of the
Energy Division, Rubicon will subscribe for $90 million of Forests’ shares by way of a placement. If separation does not
proceed and Rubicon is not established, FCIL has agreed to compensate the underwriters for losses incurred arising from
the underwrite and share placement up to a maximum of $200 million (such liability to be shared by the Energy Division
as to ¾ and by the Building Division as to ¼)
Fletcher Building Limited
The Building Division (“FCB”) will stand alone as a separate publicly listed entity. The Board is convinced that
Fletcher Building has the potential to be a high performing company. After full analysis, the Board’s clear view is that
the value which can be achieved by operating Fletcher Building as a stand-alone company, with the implementation of a
new performance focus and strategic direction, far exceeds that offered by interested industry and financial buyers.
The new direction of Fletcher Building will focus on earning the right to growth through three key themes:
Portfolio re-alignment, and the exit over time of under-performing and non-core assets. In particular, it is intended
that the Division’s current activities in both India and South America will be exited at the appropriate time, and the
focus will move back to New Zealand-based businesses
An aggressive cost/operational programme, with an emphasis on achieving international best practice in all operations
in terms of cost, efficiency and working capital usage
A increased involvement in “new-growth” opportunities within the building industry template in New Zealand
Examples of this growth will include greater participation in e-commerce initiatives and extending Fletcher Building’s
existing research and development activities into composite building materials.
These changes will be initiated with the appointment of a new Chief Executive Officer for Fletcher Building – Alexander
Töldte, who brings a broad experience in implementing performance improvement and growth strategies to this role. Mr
Töldte was previously Chief Executive of the Paper Division.
“Expressions of interest were received for the whole of the Building Division from financial buyers”, said Dr Deane.
“However their view of value reflected the fact that they were unable to bring any significant industry synergies to a
potential acquisition. While the restructuring process had generated significant trade buyer interest in the Building
Division assets, it was clear that the narrow single-focus operations of the major global building industry players did
not fit well with the portfolio nature of Building’s current operations.”
Fletcher Building will also play a supporting role in the Group restructuring process, by sub-underwriting to Rubicon up
to $50 million of the Forests’ rights issue.
The Board has also declared a final dividend of eight cents per share, to be paid on 9 November to shareholders of
record on 27 October 2000.
The Board of Directors are unanimously recommending to shareholders the acceptance of an offer from Shell and Apache for
the acquisition of Energy Division (“FCE”).
The transaction, which is conditional on regulatory and shareholder approvals, will involve Shell and Apache acquiring
the Energy Division. As part of this transaction, Fletcher Challenge Energy shareholders will receive:
Cash of US$ 3.34 (NZ$8.30 at Friday’s foreign exchange rate of 0.4025) per Fletcher Challenge Energy share
An entitlement to receive 1 Capstone share for every 70 FCE shares held
1 share in Rubicon (the new company to be formed) for every FCE share held
In addition, Shell will make a payment to Fletcher Challenge Limited, which will be used to repay all outstanding
indebtedness of FCE at closing, and also cover the Energy Division’s share of the total Group restructuring and
“At Friday’s Capstone share price of US$48.50 per share, and using the book value of Rubicon’s assets, the joint
Shell/Apache offer is equivalent to NZ$11.22 per FCE share. This is a 43% premium to yesterday’s FCE closing share price
on the NZSE of $7.85, and an even higher premium to the prevailing share price of around $6.75 per share in July - that
is, the FCE share price prior to Shell’s application to the NZ Commerce Commission being made public and any resultant
take-over speculation being imputed into the FCE share price,” Dr Deane said.
“We recognise that a significant part of the value shareholders will receive will ultimately depend on the price
attributed to the Capstone shares. While we cannot influence that in any way, a very positive aspect of the Shell and
Apache offer is that it will ensure shareholders receive Capstone entitlements as soon as possible, so that they can
make their own investment decision as to those shares. We hope that shareholders will be able to convert their Capstone
entitlements into Capstone shares in just over a month from the settlement of the Shell and Apache transaction in mid
Commenting on the US dollar nature of Shell’s offer, Dr Deane confirmed that as FCE is a US dollar functional currency
business, over time its share price has tracked, and will continue to track, movements in the NZ$ to US$ cross rates.
“Because of this, we have moved to protect the offer price to shareholders from movements in the New Zealand FX rate
against the US dollar, by agreeing that Shell and Apache bid in US dollars,” he said.
The Shell and Apache offer is subject to regulatory consents in New Zealand, Australia, Canada, the United States and
Brunei. The New Zealand Commerce Commission is expected to rule on any competition issues resulting from the acquisition
Speaking to the wider review process adopted, Dr Deane said: “There was extensive third party interest in the Energy
Division, and all major industry players with an interest in our particular mix of geographies, oil & gas assets and maturity profiles were contacted as part of the restructuring process.”
“Given that, we strongly believe that the price offered by Shell and Apache today represents the best value that can be
obtained for shareholders in an outright sale of Fletcher Challenge Energy. Further, having reviewed the stand-alone
alternative, the Board is confident the Shell and Apache proposal offers better value today, with certainty, than could
reasonably be expected to be achieved over time, were the Division to trade as a separately-listed public entity.”
Dr Deane went on to say “While we may have liked to have seen an independently-listed Fletcher Challenge Energy, the
Shell and Apache offer is an excellent one, and it is quite clear that it is in the best interests of Energy
shareholders. In addition to the full cash component of the offer price – which represents a figure in excess of
Friday’s closing Fletcher Challenge Energy share price inclusive of the Capstone shares - the availability of the
Capstone entitlement and the Rubicon shares as an additional component of the consideration is a significant plus for
shareholders. With Capstone, they will be able to receive freely tradeable stock in a company that has shown very strong
equity market performance since its initial public offering in June of this year.”
“The outcome would not have been possible without the restructuring that Greig Gailey and his team have carried out over
the past 18 months, and the tight focus on operational performance that all employees have been responsible for,” Dr
Deane confirmed. “For our valued employees, customers and stakeholders in FCE, we are satisfied that we have been able
to turn the business over to two leading players in the global E business. It is also very pleasing that both Apache and Shell have acknowledged the capabilities of many of our
Commenting on the formation of Rubicon, Dr Deane said: “The Board is excited about the establishment of a new company as
part of the separation process. Rubicon will be an on-going, active business, with a defined strategy to commercialise
new technologies that have the potential to capture high-growth, high-margin opportunities in emerging industries.
Rubicon will be a New Zealand-based publicly-listed entity, and will form alliances with New Zealand’s universities,
Crown research institutes and other research groups to work with them to develop and commercialise the intellectual
property and knowledge that exists in selected industries.”
The initial mix of business will reflect not only the future direction of Rubicon but also the need to facilitate the
separation process through this vehicle. The business mix will be refined rapidly and constantly to ensure a focus on
the core long-term strategies of Rubicon while looking to extract shareholder value from the non-core assets.
On its establishment, Rubicon will consist of:
The forestry biotechnology assets (acquired from the Forests Division) consisting of: -
An active investment in ArborGen (the biotechnology joint venture between the Forests Division, Westvaco,
International Paper and Genesis Research and Development Corporation, formed earlier this year to produce and market
tree seedlings that will improve forest health and productivity)
The tree technology operations at Te Teko in the Bay of Plenty
A 2.9% investment in Genesis Research & Development (Genesis)
The South American forestry assets of the Forests Division
The Challenge! network of retail petrol operations, and related terminals in Timaru and New Plymouth, plus the
Brisbane terminal (acquired in total for $20 million)
A 14% interest in NZ Refining Company
A strategic alliance with Genesis, to commercialise research and development of bio-remediation
A commitment to the Forests Division’s recapitalisation by providing up to $170 million of any shortfall on the rights
issue, and taking up a placement of $90 million of new Forests ordinary and preference shares.
All the shares in Rubicon will be received by Energy shareholders as partial consideration for the acquisition of the
Energy Division by Shell and Apache.
New Board and Management
Dr Deane also announced the appointment of Mr Luke Moriarty to the role of Chief Executive Officer of Rubicon. “Luke is
an ideal candidate for this position. He has lived, studied and worked internationally, in both financial and strategic
leadership roles. He has been a member of the Executive Office of Fletcher Challenge for several years with his current
responsibilities encompassing the direction of the Group’s strategic growth initiatives.”
Referring to Rubicon’s mandate, Dr Deane continued: “Clearly, we have been extremely successful in this type of
endeavour in the past. For example, a clearly defined vision of the future for distributed power generation, combined
with a minimal US$20 million investment in Capstone Turbine Corporation, has generated some $900 million of value for
shareholders today. We believe we can pursue promising similar future opportunities, including our current investment in
To ensure Rubicon moves forward quickly, a Board and management team with broad international experience will be
appointed. They will not only provide the key strategic and commercial governance required, but they will also enable
the forging of relationships and alliances necessary to access opportunities and move the company forward. Key Board
appointments will be announced immediately following the establishment of Rubicon.
First alliances in place
Rubicon will also establish a strategic alliance with Genesis Research and Development Corporation in relation to the
commercialisation of research and development into industrial biotechnology and bio-remediation (the clean up of
contaminated soil and groundwater through the use of microbes, fungal or plant-based organisms). “Environmental
management is a US$500 billion-industry internationally, and soil and water remediation represent a large proportion of
this figure”, said Dr. Deane. “Genesis and Rubicon will jointly fund research into the discovery of organisms that not
only assist in the speed of natural remediation, but also increase the toxicity levels that can be handled. We see this
as a natural extension of the type of work we are carrying out in ArborGen,” he said.
Role in restructuring of Fletcher Challenge Limited
Dr Deane also explained that in addition to the value which will be derived from the implementation of Rubicon’s
on-going strategy, the company will play a critical but shorter-term role in the immediate dismantling of the Group’s
targeted share structure announced today.
“First, its presence will help to complete the re-capitalisation of Fletcher Challenge Forests. By acquiring Forests
Division’s biotechnology and South American forestry assets at fair value and at the same time removing Forests’ $40
million R cash commitment to ArborGen over the next 4 years, Fletcher Challenge Forest’s focus is not only refined to its core
business, but future free cashflow projections are improved. In addition, as Rubicon will support the rights issue by
providing up to $170 million of any shortfall and also $90 million by way of new Forests share placement, it is
providing increased certainty to Forest Division shareholders, and also to all Fletcher Challenge shareholders, that the
overall Group separation will be successful.
“Secondly, Rubicon will act as the acquirer of those Fletcher Challenge Energy assets which did not match with Shell’s
vision for the Division. Challenge! retail petroleum operations and their related terminals in New Zealand, and the
Brisbane terminal in Australia and the New Zealand Refining Company shares all fall into this category. These will be
non-core to Rubicon’s outlined strategy, and will be disposed of as and when value can be achieved for shareholders.
Forests’ Proforma Balance Sheet
Backgrounder, three CEOs
Backgrounders, FCL, FCB, FCE, FCF
Backgrounder, Shell and Apache
Apache Corporation is a large independent oil and gas exploration and production company with $6.2 billion in assets and
operations in the United States, Canada, Australia, Egypt, Poland and China. Daily production averages approximately
260,000 barrels of oil equivalent. Proved reserves at yearend 1999 totalled 807 million barrels of oil equivalent.
In Canada, Apache is active in the Western Sedimentary and Willesden Basins. The company produces approximately 134
million cubic feet of natural gas and 16,000 barrels of oil per day. At year-end 1999, Apache’s proved reserves in
Canada totalled 83 million barrels of oil and 407 billion cubic feet of natural gas. Apache’s acquisition of producing
properties and undeveloped acreage from Shell Canada in the fourth quarter of 1999 established Canada as the company’s
newest growth area.
Apache Corporation was established in Minneapolis, Minnesota, in 1954. Its common shares have been listed on the New
York Stock Exchange since 1969.
The formation of a new company, Rubicon, was announced today by Dr Deane, the Chairman of the Board of Fletcher
Challenge Limited. It will be a business developer which will have as its objective, the commercialisation of selected
emerging technologies that have the potential to capture high-growth, high margin opportunities for shareholders. It
will be New Zealand-based.
Rubicon will be publicly listed and its shares will be freely tradable on the NZSE and ASX. Listing is expected to occur
in mid-February, 2001, immediately following completion of the separation process. It is expected to have an initial
book capitalisation of approximately NZ$310 million.
Rubicon will operate in a few selected arenas where it believes superior economics can be achieved. It will invest, form
alliances, and work actively with the developers and owners of technologies which, once commercialised, will produce
superior financial returns. The objective is to achieve long-term capital growth rather than current income from any
A part of Rubicon’s initial focus is to facilitate the Fletcher Challenge separation process. This will be a short-term
arena of activity.
Rubicon will only invest in opportunities where they can pass through three key “gates”:
1. The opportunity must fall within Rubicon’s selected arenas. These arenas will fit the new economy model of
sustainable business development, with a strong technology bias. A sustainable business systematically reduces its
impact on the environment by reducing waste and pollution, optimising the amount and type of energy and materials used
to produce long-life products and services, and by increasing value from intangible assets.
2. Investment will only be made in enterprises and opportunities believed to have exceptional growth and high-margin
potential, and which clearly fit within a new industry or position within an industry that will deliver superior
economics for participants.
Rubicon must be able to add value to the opportunity through at least one of the following:
The formation of enabling alliances
The provision of a path to commercialisation
Unique management insight or direction
The provision of business-building capabilities
Access to funding (which in and of itself, will not be a sufficient condition)
ArborGen – an application of the philosophy
Rubicon’s position in ArborGen, which it acquires from the Forests Division, is an example of the application of this
ArborGen is a leading forestry biotechnology venture between Forests and its North American partners, International
Paper and Westvaco, and its other New Zealand partner, Genesis Research and Development. This international partnership
was established because no one company had all of the requisite capabilities to build a complete forestry bioengineering
As the world continues to lose native forests, industry must improve the productivity and economics of tree-farmed wood.
Wood-based products must be able to compete against substitute products (concrete, plastics, steel, aluminium, synthetic
fibres), all of which are significant and inefficient users of energy and other non-renewable resources.
ArborGen’s early targets focus on improving growth rates, to produce more wood from less land at lower costs, and on
producing wood with improved fibre properties and qualities, to increase the efficiency of paper and wood products
manufacturing processes and their properties in use.
These gains are expected to enable forest landowners to meet the growing demand for paper and wood products while
strengthening their ability to manage forest lands in a sustainable and eco-efficient manner. Increasing the
productivity of tree farms safely and sustainably will help meet the world’s wood and fibre needs, in turn reducing the
pressure on native forests.
Initial Investment Portfolio
Rubicon’s initial business portfolio will include active business interests in three selected arenas.
1. Forestry Biotechnology
Investments in this arena include:
A 32% interest in ArborGen
The tree solutions technology capabilities at Te Teko in the Bay of Plenty
A 50% share in the intellectual property of the Radiata and Eucalyptus grandis genetic database
A minor equity investment in Genesis Research and Development Corporation.
Today’s announcement of an alliance with Genesis Research and Development to explore and develop opportunities in this
arena is a key initial step. This programme will draw on the considerable research and capability that exists with
applications in the use of organisms for bio-remediation (cleanup of contaminated soil and groundwater) and
bio-filtration (pollution control technology involving the removal and oxidation of compounds from contaminated air or
water). Further arenas with specific initiatives will be progressively announced as actions are taken to finalise them.
2. Enabler in the Fletcher Challenge separation process
In addition, as noted by Dr Deane, Rubicon will also own the Challenge! network of retail petrol stations and related
terminals, which Shell was unable to retain as part of its offer for the Fletcher Challenge Energy Division. Challenge!
is non-core to Rubicon and will be disposed of as and when value can be achieved for shareholders.
Rubicon will also acquire the South American assets of Forests Division. Over time, the best value and use of these
assets will be determined.
Rubicon will receive cash equal to the amount of the sale of up to 3 million Capstone shares which will enable it to
sub-underwrite up to $170 million of the Fletcher Challenge Forests’ Rights Issue. It will also subscribe to $90 million
in a Fletcher Challenge Forests share placement.
Management and Governance
Rubicon’s management will be a small, highly experienced team with a proven track record, bringing the key competencies
required to effectively establish emerging businesses. An experienced Board will be appointed. Core to the team will be
the people that have delivered new business development ideas and step-out ventures for Fletcher Challenge Limited over
the past decade, including Capstone and ArborGen.
Rubicon will operate with a tight governance framework for its investment. Two key committees will control the
management processes: a technology committee to provide technical ideas and assessment; and an investment committee, to
ensure the commercialisation processes occur and that the right investment decisions are made.
1. In addition, any investment decision must pass through the three investment “gates” noted above.
Capstone history – a governance success
The Capstone success provides the model Rubicon will apply. In the late 1980s, precipitated by deregulation, investment
risk and environmental concerns, Fletcher Challenge’s Energy group undertook a study to form a view of future energy
markets. As an outcome the team recognised that distributed generation was likely to deliver fundamentally superior
economics than traditional forms of generation. This team then undertook a global search for opportunities consistent
with this view —uncovering both the Capstone turbine and the stationary fuel cell opportunities.
Capstone focuses on meeting the current and emerging energy needs of customers in an energy efficient and
environmentally friendly way. There are two primary applications for the technology. The first is to generate
electricity for stationary or non-mobile applications (i.e. Capstone turbine could be used as a mini power station). The
second is as a mobile application (i.e. a turbine to power low emission hybrid vehicles).
Fletcher Challenge provided seed capital to the Capstone opportunity as well as planning and development advice and
guidance into the commercialisation of the technology and the business building process. The seed investment grew from
NZ$12 million to NZ$60 million. The investment is now worth NZ$1.0 billion following the very successful IPO of the
Company in June of this year. (see http://www.capstoneturbine.com)
The fuel cell opportunity was also taken up but was exited, well before its full potential, as a part of Fletcher
Challenge Energy’s strategic re-focus to oil & gas exploration and production.
At the time of listing, Rubicon will have its Board, management team and investment governance framework in place. It
will be positioned to become a successful business development company, managing a portfolio of high-growth
opportunities that fit the definition of sustainable business. This new portfolio will begin a key
partnership-investment in ArborGen and tree solutions, will immediately extend into a new arena - environmental services
- and will look to develop New Zealand’s most prospective emerging technology. Announcements will be made at the
appropriate time with regard to further arenas and investment opportunities. By then, Rubicon will also have explored
the opportunity to divest the Challenge! network.
SHELL EXPLORATION AND PRODUCTION IN NEW ZEALAND
Shell technology discovered, developed and delivers energy to meet 57% of New Zealand’s total energy needs.
Shell holds interests in the Maui (25%) oil and gas and Kapuni (50%) gas field operations. These gas fields operate 24
hours a day, 365 days a year, and together supply around 90% of New Zealand’s gas.
Shell has a 49% interest in the recently discovered Maari oil field.
This field has estimated reserves of 57 million barrels of oil.
Shell has been involved in the exploration and production of oil and gas in New Zealand since 1930 when several wells
were drilled on the West Coast of the South Island.
In 1959, Shell was involved in the discovery of Kapuni, New Zealand’s first commercial onshore gas field.
A seven year programme of offshore exploration during the 1960s ended with the discovery of the Maui gas field in
1968. At the time Maui was one of the largest offshore gas fields in the world.
Shell has been in New Zealand for more than 87 years.
Alexander Töldte - Chief Executive, Fletcher Building
Mr Töldte has most recently been the CEO of Fletcher Challenge’s Paper Division, prior to its sale. Previously, he held
the role of Chief Financial Officer of Fletcher Challenge Ltd, and prior to that, was a partner of McKinsey & Company, the international consulting group, and a co-leader of one of its global practice groups. He has been based in
Auckland most recently, following time in Sweden, after 11 years in the Toronto, Brussels and Montreal offices of
McKinsey & Company.
Mr Töldte’s extensive experience base spans forest industries, building materials, consumer products, automotive and
energy industries in both North America and Europe, and he will take up his new role immediately.
Terry McFadgen – Chief Executive, Fletcher Challenge Forests
Mr McFadgen was most recently Chief Executive of Fletcher Challenge Building, and prior to that, was Head of the Office
of the Chief Executive, after having played a key role in the restructuring of Building’s commercial building operations
in Australia. Before moving to Australia, he was a senior partner with Simpson Grierson in Auckland, and has lived and
worked overseas with international law firms in New York and London.
Mr McFadgen brings to the role his legal background, as well as experience in managing successful, New Zealand-based,
businesses in forestry-linked industries. His international experience, will also be an asset to the wider Fletcher
Challenge Forests market-driven initiatives. His tertiary education was in Auckland and North America, and he has a
Master of Laws degree from Harvard.
Mr McFadgen lives in Auckland, and is married with two grown children. He will take up his new role immediately.
Luke Moriarty – Chief Executive, Rubicon
Mr Moriarty is currently Head of Strategy & Growth for the Fletcher Challenge Group, and he has been a member of the Executive Office since 1998. He has previously
held roles in finance and strategic planning. His involvement with key knowledge-based initiatives, and his range of
strategic skills, places him in a strong position to leverage network opportunities for Rubicon.
He has lived and worked internationally, including in the United States and Canada, where he was Chief Financial Officer
of Fletcher Challenge Canada Ltd and a Director of TimberWest Forests Ltd.
He has a Masters Degree in Science from Stanford University, and undergraduate degrees in Law (honours) and Commerce
from Victoria University. Married with two daughters, Mr Moriarty lives in Auckland. He will take up his new role
immediately following the completion of the separation process.