Jarvis,
It will be interesting to watch how things unfold.
If this restructuring proposal gets up in the next month or so (that is, it receives shareholder approval) it will be because Gunns has the Finance for the Pulp Mill secured.
If Gunns plans to own only 51% of the new entity Southern Star, and Southern Star will own all Gunn’s current land, plantations and $$ spent on the proposed pulp mill to date, then Gunns is effectively selling the other 49% of their Pulp Mill related assets (land, plantation, mill expenditure) to Southern Star. The land and trees are Gunns key asset so this is a big deal indeed.
This will require Southern Star to raise a significant amount of cash (quickly) to pay Gunns for these (pulp mill related) assets. Roughly $500m, perhaps more? This would cash up Gunns and help them retire more debt. Why not raise a lot more through Southern Star and put it towards the Capex (capital expenditure) of a new Pulp Mill (this way they may not have to give Gunns any cash as Gunns will now own 51% of a new entity worth a lot more…maybe equal to or greater than the value of all their vended assets)?
This would presumably be via a share issue to new shareholders in Southern Star…and who would they be I wonder?? And what of existing disgruntled shareholders in today’s Financial Review (see article link below) … tthey not want to participate in a new share issue for Southern Star, but they would be happy to see some certainty in the Pulp Mill proposal and things underway … and it would presumably revalue Gunn’s 51% stake in the new entity so they won’t be complaining (in fact they are likely to jump on the train if it gets moving!).
Don’t forget there is some hungry and highly skilled investment bankers working around the clock on this re-structuring, and having worked as one myself, you don’t get between them and a bowl of money ,,, the fees for this deal with be in the tens of millions … big Xmas bonuses for them.
If my hunch is correct, and the re-structuring deal goes through … then the pulp mill financing is well underway … in fact it’s probably all secured. If it doesn’t get up, I think the mill (and some directors) are dead ducks.
It’s a last roll of the dice. For those in the Tamar, we shouldn’t have long to wait now for some certainty,
Fingers crossed … if the tension and anxiety gets too much Jarvis, I’ve plenty of Pinot for sale … not going cheaply yet I might add,
Let’s wait and see!
Gunns comes under fire from shareholders
28 Apr, 2010 10:08 AM
Gunns’ two biggest shareholders have criticised a management shake-up at the forestry group, saying it was unacceptable for founder and chairman John Gay to assume control of a newly created subsidiary.
The Australian Financial Review reports that under mounting pressure from investors to sack Mr Gay, Gunns last week said he would step down as chairman and take on a the position of chairman of a newly created subsidiary, Southern Star.
Southern Star will own Gunns’ $2.2 billion pulp mill project and Tasmanian timber plantations. Gunns will retain at least 51 per cent of Southern Star. It plans to sell the bulk of its native forest plantations and “non-forestry assets”, which include a network of Mitre 10 hardware stores, a construction division and the Tamar Ridge Estates winery.
But Charlie Lanchester, a portfolio manager at Gunns’ single-biggest shareholder Perpetual, said it wasn’t acceptable for Mr Gay and another director, former Tasmanian premier Robin Gray, to retain close links to Gunns.
“They [Gunns] have intended for them to retire, however, their continued involvement in important subsidiaries is unacceptable,” Mr Lanchester said. “The company and its shareholders will be better served by fresh leadership at the board level.”
