Subject to regulatory approval, the acquisition will be funded with a $145 million equity-raising initiative, structured as a fully underwritten 1 for 4 non-renounceable pro-rata entitlement offer.
As part of the deal, Gunns will acquire two manufacturing locations in Victoria and two in Tasmania, as well as a 50 per cent stake in Smartfibre, a joint venture with Forest Enterprises Australia that exports hardwood chips.
“This acquisition creates a business with significant scale and a distribution footprint across Australia and south-east Asia and the ability for the group to strengthen its presence in the most viable ‘wood baskets’ in Australia,” said Gunns chairman John Gay.
The company said it expects the acquisition to deliver annualised earnings before interest and tax (EBIT) of approximately $20 million.
Over the 2008/09 financial year, however, the company recorded EBIT of $110.8 million, a 20 per cent prior decline on the prior year which the company has attributed to a “reduction in global demand for woodchips and a decline in sales of plantation managed investment scheme (MIS) products”.
The company notched a net profit of $56.2m, which represented a 4.9 per cent decline on the previous year, whilst group revenue for the year was $769.3 million, down 10.7 per cent on the prior year. The company also saw its net debt reduced to $654.3 million as of June 30.
“Demand in our key Forest Products business both in export markets and the domestic construction sector weakened throughout the 2009 financial year, particularly in the third quarter,” said Gay.
“These markets have stabilised in the course of the last quarter and are expected to improve progressively through the course of the 2010 financial year.”
“The impact of the disruption across the MIS sector was significant in its effect on sales for this business in the critical year-end sales period.”
The company also foreshadowed its intention to acquire an interest in the operations of now-defunct Timbercorp and Great Southern Plantations.
“Significant opportunities for expansion of the group’s interests in the Australian forestry sector are arising, primarily through the restructure of the MIS sector,” Gay said.
“Gunns is well positioned to capitalise on opportunities that may become available, and is assessing several opportunities to diversify and expand its forestry operations.”
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