Saturday, 24 April 2010

Nothing has changed

A prognosis of a terminal condition is always considered to be a true test for those involved.

Gunns’ undertook a strategic review following its half yearly report in Feb 2010 and report to the market in April. If the recent ASX announcement is in fact the interim report, then maybe Gunns’ woes are worse than expected.

The announcements flag the sale of the non core businesses of hardware retailing, viticulture, and construction.

Furthermore native forests will be sold.

And then the pulp mill and plantation assets will be spun off into a new entity Southern Star(SS), with Gunns as a 51% owner.

So Gunns will be left with only the sawmills plus the share in SS, a business that will be unable to support much debt.

SS will presumably be left with the MIS business, which with Gunns announcement that no MIS’s will be offered for 2010, means that the MIS business will run at a loss for a few years.

The absence of any 2010 plantings following disappointing 2009 sales must cast doubts on the claim that the pulp mill will be 100% plantation based in the future.

Hence SS will have a loss making MIS business together with lots of MIS land mortgaged to the banks for probably $350 million.

Nothing has changed.

There’s no evidence of a strategic review.

Maybe the corporate doctors have just diagnosed a terminal condition.

The announcements about SS are simply an understandable refusal to accept the prognosis.

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