Rubicon pays 'bargain' price for ArborGen control

Rubicon says it got a bargain with the $US29 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 $US124 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 $US51 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 $US6 million in the 15 months ended September 30 on revenue of $US115 million.

Auckland-based Rubicon injected $US6 million of capital into ArborGen and has advanced a $US5 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, chairman 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 (for example, species, regions) of this policy, other than that a target of 100 million trees a year being planted in New Zealand has been widely stated," Mr Kasnet said. "ArborGen-NZ currently produces around 16 million tree stocks a year, so there is clearly upside for it should this policy be implemented in a managed manner."

Rubicon also teamed up with US and New Zealand investors to buy the Clearwood manufacturing business near Taupo.

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

(BusinessDesk)