Opio - takeover bid by City Forests

[artemis]

Announcement posted to NZX today. Anyone have any further information?

[k1w1]

City Forests Ltd is a local govt trading enterprise run by Dunedin City Council that owns forests around the Dunedin area.

Interestingly Nuhaka, run by the same outfit that runs Opio,and 100% owned by PGG, also has a don't sell advisory on its units as someone is doing due diligence on them with a view to putting in an offer by mid August.

So whats going on ? Any way its doing nice things to the share price:)

[Thaum]

Put a big smile on my face, currently my biggest share holding :D

[wsheridan]

City Forests is planning to build a new mill south of dunedin so obviously need to get some guaranteed supply .... as they need the logs maybe some more value can be extracted from them?

[Andrew]

Just when the time looks good for Opio, a takeover offer comes in. It has all the hallmarks of PR ie giving shareholders a way out at good value etc.

In five years time these share will be worth three times as much as the market value of .58 prior to the announcement.

85 cents just isnt enough.

Hold tight a new offer must come in, or another takeover offer from someone else.

Yippee!!!

[cruisader]

I am a long suffering Opio shareholder but 85cents is stealing it. The company has 22 cents per share in cash and owns the land whereas Nuhaka doesnt, but the harvest is still 5 to 6 years away. Does anyone know anything about deferred tax in forestry companies? Opio has $1.8m in deferred tax, this could add another 12cents per share.

[marymary]

K1w1: I had the same thought about NUH. That offer was meant to come at the end of June, then July, now mid-August.

Where are the Opio forests? NUH are in Gisborn Region, I believe.

Disc: NUH

[k1w1]

Nuhaka shares are in Nuhaka region which is between Gisborne and Napier as I recall ie out in the boondocks.

Opio forests are in Southland and Otago and run by clever southerners (like the gentle rampers on the Oyster Bay Vineyards thread ). What I am interested in is why Thuam had it as his biggest holding ( and what the hell is a Thuam anyway).

My feeling is that the Nuh valuations are very susceptible to changes in timber price, and include an allowance for tax liability which will never arise so long as 100% distributions to beneficiaries occurs within the 12 month period.

Plus just sitting there the amount of wood increases by 10% per annum so its not like the assets are not growing over time.

My view when I bought was that NUH was an out of fashion company in an out of fashion industry so there was a chance that the market was not valuing it accurately. If the due diligence people turn into bidders we will find out whether I have screwed up again.[B)]

[Tinker]

Yes interesting. I bought Opio early this year as it then had an NTA of 98c based on a 10% discount rate, logs priced at the average of the last 3 years ( historically low)and seemed to be maintaining the forests. I assumed the defered tax would be payable but as Cruisader noted if this is not so then the value increases.

At 50c the margin of safety, as young Mr Graham would have said, appeared high at the time.

I also noted that clever Americans were punting that the price of logs was going to increase.

No doubt the independent report to shareholders will give an update on land value, present log prices etc so I await this with interest. 85c is 13% less than the then NTA.

Cheers
Tinker
Discl. Own

[Thaum]

K1w1,

My reasons for bulking up on OPI earlier this year were similar to your ones for NUH, although OPI seemed the more extreme example of an under-appreciated stock at the time. I think the fact that the share price was flat for so many years scared potential investors off, even though it was trading at half its NTA at a time when forestry appears at cyclical lows (ie. good potential for value appreciation).

85c is a nice premium over the prior market price, but still values the forest under its NTA of around $1.00. My view is that the dollar should depreciate and forest values should bounce off their cyclical lows in the next few years, so an offer at or above NTA would be warranted. It will be interesting to see what many of the long suffering holders decide on this one though.

[glennj]

marymary Opio's forests are in Otago & Southland.

I bought a few Opio shares not that long ago for value/contrarian reasons. Thought I'd better be in at least four years before the main harvesting commenced as I'd observed what happened to Nuhaka's price in the run up to harvesting.
Higher log prices, which would have a positive effect on the share price, looked a
safe bet at some time pre harvest as I purchased at an export log price low.
Had been expecting share price appreciation but the takeover offer caught me by surprise.
City Forests have a substantial resource of their own and could buy the rightlog grades in to supplement their own supply for a new sawmill.
Will await the report with interest.

[Andrew]

I think we all agree that Opio prior to the takeover bid was at an all time low. Dollar High, log demand low, selling for less than NTA.
The discount rate was 10% which had been increased from 8 I believe. This was done when interest rates around the world and in NZ were at an all time low.

The good news is that harvesting was to start in four years. Within the next four years we will have increased log demand, lower dollar. 10 % increase in book value on todays projections.

Even if all remains the same we will have in four or five years a ten percent return on Book Value, giving a value of some 1-45, payout per share.

City Forests cant lose. A pitiful offer, should be at least book value considering the upside of the market and value. I cant see the offer proceeding. Margaret Gourlay looks like she is in for the long term. The Lionel Hastings Trust also looks like a long term investor.

To succeed they will have to raise the offer to at leat 95.

[Tinker]

Here, here Andrew.

Roll on the independent report.

[Tinker]

Well Andrew, you weren't far off. I see the valuation is 93.4 cents using an 11.5% discount rate.

I would have appreciated more comment about the impact (value) of a rationalisation of the fees paid to the trustee, manager and other consultants if the take over succeeded. Admin, Forest Management and Trustees fees totalled $185k last year. For the next 10 years until the forest is milled that equals $1.85 million. Quite a chunk of the tree crops valuation of $9.2 million I am thinking.

Also interesting that there is no compulsory takeover provisions. I wonder how they purchase the last share from Angus now esconced in Thailand who couldn't be bothered with a forwarding address and all that rubbish? Anybody know?

Am getting more interested. Perhaps CFL could run a study on the impact of the fees due to rationalisation. Might bump the price up a bit.

Cheers
Tinker

[Tinker]

Cripes I must be bored but anyway I have read the independent report by Chandler et. al. and I have some questions!:D

Why does Perpetual Trust highlight that Chandlers has valued the tree crop at $9.217 million but seems to make no mention of the fact that Chandlers highlights in section 10.2 of their report that the Forest value is assessed at $12.6 million, if you include the land value?

And if there are 14,964,000 units on issue and a valuation of $12.6 million how does Perpetual calculate a market value of 93.4 cents? 12.6/14.9 = 84c.

I must be missing something somewhere. What is it?

Cheers
Tinker

PS the management fees I quoted above are from the 2003 annual report. This years are slightly lower but valuation fees are up so not much diff.

[Tinker]

Ok Ok, Too early in the morning for me. The difference is presumably short term deposits held in hand (including 3 million deposited in unsecured investment funds managed by Perpetual - bet thats earning a top rate:)) less tax liabilities.

Time for a cup of tea I think.

Cheers
Tinker

[Andrew]

Interesting to see that the sellers have dropped to .83 cents.

Some think that the takeover will not proceed.

I think that the takeover will continue partially, as the offer documents stipulates that it is up to the offeror to make a decision whether it will take partial acceptances that fall short of their goal.

They could clean up the rest later, at a higher price.

What to do! Sell or hold.

[Tinker]

The more I think about:

the $3 million raised from owners and now lent to an undisclosed associate party of Perpetual,

the lack of clarity for me in their response to the takeover offer ( eg what is the total value of the company, what costs could be minimised if it was taken over, what would happen if 75% was taken over)

and the administration costs of around $1.8 million that Perpetual et. al. will incur over the next 10 years

the less I like it.

There is just a slight whiff about things to my sensitive nose. And it is not lilacs.

If CFL were to offer a margin over the valuation I think I would sell. But I am interested in what the unsecured $3 million is invested in. Still I see in their 2003 report that they have $75k deposited in the BNZ which will be valuable when it comes to spending money on harvesting in a few years time:D.

So CFL, how about a 98c per share unconditional offer? That would leave something in the deal for your owners.

Cheers
Tinker

[Andrew]

I dont think it was addressed by Perpetual, but what would happen to the losses carried forward if CFL get over 50% ownership.

Generally in company situations they would lose the benefit of carried forward losses, but as Opio is an Investment Trust, what is the position.

Dont think much of the perpetual report. It didnt give any alternative prices and values based on variances which may occur such as an increase in log prices and movement in exchange rates.

I would hate to be minority owner if CFL get a large bite. Can you imagine what would happen when they harvest with their other forest holdings, prices, demand, use for pulp or timber, Not my scene, worrying about that sort of thing. Bring on 95cents and Im out.

Oh love to bring it up, but you heard it here first, but no one responded.:D

http://www.sharetrader.co.nz/topic.asp?TOPIC_ID=18533&SearchTerms=opi

[Tinker]

Yep well spotted back then Andrew.

Here's hoping CFL up their bid. If not then I'll just hang on but if I'm bored one day might just ask the manager and trustee few questions. Or better yet they could be pro active and deal with the concerns raised after reading this[^].

Cheers
Tinker

[k1w1]

Yes well spotted Andrew. What's your take on NUH?

My farm is bet on the fact that it may be next.:)

[duncan macgregor]

Tinker, Hope you dont wait to long ask now. To find the truth ask from the bottom up. macdunk

[Andrew]

Maybe I shouldn't have said that!

"PRIDE GOETH BEFORE DESTRUCTION"[B)]

[cruisader]

It appears as though CFL have had a poor response to the offer (8.6% according to THE PRESS) and are arguing with the Trustee about access to the register. Maybe if they offered a better price they would have more luck!

[Tinker]

Here, here cruisader! 98c I say!!!!!!!!!!!!!!!

But at least they have extended the offer period to the 8th October. Hopefully to give them time to empty the cookie jar and look behind the couch for a few extra pennies.

Haven't read the bumpf yet but will later today.

Cheers
Tinker

[Thaum]

Well, looks like their bid is gathering pace, 25% as of this morning. A bid in the 90's would probably take me out, but otherwise I'll watch the forests grow a bit more..

[Tinker]

Mmm yes I think you are right. Strikes me as a substantial no. sold this early. CFL might succeed.

Think I'll hold and see what eventuates.

cheers
Tinker

[Tinker]

Ok Offer closes next Friday.

So what are you doing?

At this stage the boss is going to sell and squander on lattes and hot muffins:D

Cheers
Tinker

[k1w1]

I am selling and holding on to my NUH which is the opposite to what I had planned.

Will City Forests still buy if they get more than 50% but less tha 75% as looks likely. What is so magical about 75% ?

[Steve]

75% is the level required for certain shareholder approvals that require more than a simple majority...

[Thaum]

I assume having control the harvesting would play a big part of City Forest's motivation for the takeover. Would they have effective control of this aspect of Opio at 50%, or would that be at the 75% mark? If OPI were a normal share I'd hold out for an offer nearer to the independent valuation, but the trust structure and takeover waivers complicate matters.....

[wsheridan]

quote:Originally posted by Thaum

I assume having control the harvesting would play a big part of City Forest's motivation for the takeover. Would they have effective control of this aspect of Opio at 50%, or would that be at the 75% mark? If OPI were a normal share I'd hold out for an offer nearer to the independent valuation, but the trust structure and takeover waivers complicate matters.....


They'll need 75% to control the trustee/manager. I suspect the manager will hold on tight for their management fee - so control of the harvest will be a long-term negotiating point.

I suspect the conditions will be waived even if they don't make 75% - one the basis that they will be able to reach some sort of agreement with the trustee over time.

I don't see any offer at a higher price in the short term ... it's the wrong sort of outfit to try that one on.