Bloomberg and The AFR have now both run rumours that Futuris is
contemplating a takeover for Tassie tree-lopping giant Gunns Ltd and it looks like there might be something in it.

Gunns shares tanked from $4 to almost $3 in the six weeks from mid-July
to August 31 after a disappointing profit, but turnover has suddenly picked up since then and the
stock is back up to $3.28 this morning after a 4.6% spike yesterday.

Gunns shares normally have less than one million change hands each
trading
day but over the past month, there have been 14 days with turnover of
more than 2 million. It looks like someone is accumulating a stake and
the entrepreneurial Perth-based Futuris is surely the only potential
predator.

Futuris is only capped at $1.45 billion but is trying to build up
its
timber business. It runs the ITC plantations management business and
bought the Neville Smith timber business in Victoria last year, plus a
23.6 per cent stake in Forest Enterprise Australia, and further
plantation land. Futuris owns 50.8 per cent of ITC.

Gunns is today capitalised at $1.1 billion but with $300 million in
debt, it has an enterprise value of $1.4 billion and any bid would need
to be pitched at more than $1.5 billion. The proposed $1 billion-plus
pulp mill in the Tamar Valley is causing a lot of consternation for
Gunns, so the future of this project would be critical with any Futuris
bid. Whilst a recent Citibank report released on 2 September estimated the project would
add $1.13 to the value of Gunns, there are considerable risks and the company is intending to rely solely on debt finance.

There aren’t really any other potential predators and who would
want to buy Gunns given all the political and community angst it
causes. Auspine is the minnow of the timber sector with a market cap of
just $191
million and Carter Holt Harvey would appear to be out of the game now
that New Zealand’s richest man Graeme Hart is bidding more than $3
billion for the business.

The Federal Government would not be a disinterested buyer in any
Futuris takeover because AWB Ltd, the government-created monopoly wheat
exporter, is the largest shareholder in Futuris with 14%, although this is hostile.

Futuris was originally built up by director Alan Newman, who was Robert
Holmes a Court’s understudy for years. The late Hacca loved tilting at
bigger players than himself and also taught Newman about the importance
of charm, something the thugs at Gunns haven’t got a clue about.

If Futuris did buy Gunns, you could expect a far more conciliatory
approach to green groups and other critics, which wouldn’t be a bad
thing given the cowboy attitude of John Gay’s team.

Peter Fray

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