Economy
Gunns: A company teetering on the edge?
Gunns’ Joint Venture partners must be wondering what’s going on when they read the latest ASX announcement by Gunns that it requires $25 million in equity funds to complete the purchase of FEA’s sawmill.
This morning’s announcement (link below) that it intends to issue more shares at 60 cents each (a discount of 10% to the current market price) suggests that all is not going smoothly. After all it was 2 months ago that Gunns announced it had reached an agreement with the Receiver and Manager of FEA to acquire the Bell Bay facility, for a rumoured $45 million.
Settlement was originally planned for 29th November but Gunns secured an extension until today.
One would have thought the settlement proceeds would have been organised some time ago.
The ASX announcement suggests a private placement of shares has been arranged at the eleventh hour. The fact that Gunns’ bankers were unable to accommodate a small loan given that Gunns has staked its future on ‘owning and operating a modern and efficient softwood mill with a sustainable wood supply volume “is a cause for concern for Gunns’ shareholders.
When things are tight and banks unwilling, raising more capital also carries risks. It draws attention to your desperate plight, it risks alienating existing shareholders who have their shareholding diluted and it limits future use of such an option.
One cannot keep asking for another bite of the cherry.
While Gunns’ restructure is being touted as the search for a social license, the latest developments suggest it is a company teetering on the edge.
Selling assets, paying redundancies, raising more equity is an unusual trifecta.
And, earlier
Jarvis (#1) is right, Websters probably won’t stump up the book value of $29 million.
They may wish to take advantage of a distressed seller.
Jarvis on my reading most of the Tassal sale appears unconditional. Only the excess % over and above the threshold 14.9% appears to require Foreign Investment Review approval.
One aspect of the deal has escaped the commentators, is that Gunns may own the land but most of the trees are owned by MIS investors.
Gunns have alerted their investors to a possible sale in a recent posting.
“As previously announced by Gunns Limited on a number of occasions; Gunns Limited are looking at selling assets associated with the Walnut Projects. GPL will inform Growers if any developments arise that will impact upon Growers. As Growers would be aware, the Walnut Schemes are located on land owned by Gunns and protected by leases registered against the titles of that land. Growers in the Walnut Schemes should note that if the proposed sale is successful, the Walnut Schemes will continue to operate as they otherwise have done and in accordance with the existing scheme documentation. This includes the continuance of the registered leases that protect Growers against other dealings involving the project land.”
This seems to suggest that Gunns will continue to act as Responsible Entity for the MIS Walnut Projects even though Websters will own the land and manage the orchard.
Just another example of the MIS structure being one of the worst inventions ever, along side the square wheel and the helicopter ejector seat.
Gunns must need the money.
This comment appeears on this article HERE.
THE AGE: Gunns closes mill, 44 sacked for Christmas
Adam Morton Environment Reporter
December 13, 2010
ALEXANDRA was once a timber town. Not any more.
Timber company Gunns has announced it is closing the last of the central Victorian community’s three mills, putting 44 people out of work.
For Tim Doherty, a mill employee for 10 years, it could mean the end of his working life. ”I’m 62 years old, what else can I do?” he said. ”I’m pretty secure, but the young kids are the ones who are going to suffer.”
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The reverberations from the decision will be felt beyond the dozens of households losing a pay packet just before Christmas. Locals say it will devastate the town, which is already losing three businesses – a clothing shop, toy store and hairdresser – over the next month. ”Apparently the bottom has dropped out of the property market already because a lot of people thought this was going to happen,” Mr Doherty said. ”When you lose 44 families and their regular income from a town of 2000 or so people, how many other people lose their job because of it?”
Further afield, environmentalists claimed the mill’s closure – which follows Gunns’ announcement that it would move out of native forests and into plantations – raised fresh questions about the future of Victoria’s timber industry and the towns that depend on it.
Wilderness Society campaigner Luke Chamberlain said it showed native forest logging was not commercially viable, and a plan was needed to move to plantations aimed at the high-quality timber market. ”The longer we leave this industry to itself, the more jobs are going to go,” he said.
But Gunns said the Alexandra mill closure was not linked to its position on native forest logging.
Gunns’ head of timber products, Chris Peterson, said it was forced by dual pressures – the ballooning cost of native sawlogs under the Victorian government’s blind auction system, and the soaring Australian dollar making it harder to compete with cheap timber imported illegally from the developing world.
Ross:
Gunns has money to buy FEA sawmill
http://www.abc.net.au/news/stories/2010/12/13/3091555.htm
but , they are raising $25,000,000 by issuing more shares, so is this the same $25Mill ?
I thought they needed $45Mill to buy the FEA mill.
http://www.asx.com.au/asxpdf/20101213/pdf/31vk7vf7mwbz29.pdf