T A R G E T ’ S S T AT E M E N T
AUS P I N E LI M ITE D
The Independent Directors
ABN 48 004 289 730
of Auspine recommend that
YO U
ACCEPT
GUNNS’ OFFER
w w w. a u s p i n e . c o m . a u
I M P O RTA N T N OT I C E S
TO S H A R E H O L D E R S
Nature of this document
This document is a Target’s Statement issued by Auspine Limited under Part 6.5 Division 3 of the Corporations Act and in response to
Gunns Limited’s Bidder Statement and Offer dated 27 November 2007.
If you are in any doubt as to how to deal with this document, you should consult your broker or other professional adviser as soon
as possible.
Defined Terms
Capitalised terms and certain abbreviations used in this Target’s Statement are defined in the Glossary and Interpretation on page 11.
Investment Advice Disclaimer
This Target’s Statement does not take into account the individual investment objectives and constraints of any Auspine Shareholder or any
other person and as such should not be relied upon as the sole basis of any investment decision regarding the proposed takeover offer.
Independent financial and taxation advice should be sought before making any investment decision.
Forward-Looking Statements Disclaimer
Some of the statements appearing in this Target’s Statement are forward-looking statements. Forward-looking statements involve
known and unknown risks, key considerations, uncertainties, assumptions and other important factors that could cause the actual results,
performance or achievements of Auspine to be materially different from future results, performance or achievements expressed or
implied by such statements. You are cautioned not to place undue reliance on any forward-looking statement. Other than required by
law, neither Auspine nor any other person gives any representation, assurance or guarantee that the occurrence of the events expressed
or implied in any forward-looking statement in this Target’s Statement will actually occur or that other events will not occur.
The forward-looking statements in this Target’s Statement reflect views held only as at the date of this Target’s Statement.
ASIC Disclaimer
A copy of this Target’s Statement has been lodged with ASIC. Neither ASIC nor any of its officers take any responsibility for the content of
this Target’s Statement.
Key dates
Date of Gunns Bidder’s Statement
27 November 2007
Date of this Target’s Statement
4 December 2007
Gunns’ Offer expires (unless extended)
7pm AEST on 18 January 2008
CHAIRMAN’S LETTER
4 December 2007
Dear Auspine Shareholder
Independent Directors unanimously recommend you accept Gunns’ Takeover Offer
On the 27th November 2007, Gunns Limited (“Gunns”) announced an unconditional offer of $7.00 per Auspine
share for the 39% of Auspine shares that it did not already own.
This Target’s Statement sets out the reasons that Auspine’s Independent Directors recommend you ACCEPT
GUNNS’ Takeover Offer, summarised as follows:
1
Mr Adrian de Bruin, the Company’s second largest shareholder, has accepted the Offer;
2
Independent Expert, Lonergan Edwards, considers the offer is FAIR and REASONABLE;
3
The offer represents a 13.8% premium to Gunns’ previous offer; and
4
Gunns latest offer is unconditional.
The Independent Directors believe this is an excellent outcome for shareholders that did not accept Gunns’
previous Offer.
Yours sincerely
Paul Teisseire
Chairman of Directors
A U S P I N E
L I M I T E D
T A R G E T ’ S
S T A T E M E N T
1
CONTENTS
TITLE
PAGE
How to accept Gunns’ offer
3
Recommendation by Independent Directors
3
Frequently Asked Questions
4
Key Terms of the Offer
6
Information relating to Directors
7
Independent Expert’s Report
10
Authorisation of Target’s Statement
10
Glossary and Interpretation
11
Annexure A – Concise Independent Expert’s Report
13
AUSPINE DIRECTORS
RECOMMEND
THAT YOU ACCEPT
GUNNS’ OFFER
2
H OW TO AC C E PT G U N N S ’ O F F E R
Refer to Section 9.3 of the Gunns Bidder’s Statement.
R E C O M M E N DAT I O N BY
I N D E P E N D E N T D I R E C TO R S
1
Mr Adrian de Bruin the Company’s second largest shareholder has
accepted the Offer.
Auspine Managing Director and Company founder Adrian de Bruin, who controlled 30.3% of the
issued shares, has accepted the Offer for all his shares.
2
Independent Expert Lonergan Edwards considers the Offer to be FAIR
and REASONABLE.
The Independent Expert engaged by the Auspine Board, Lonergan Edwards, has concluded the
Gunns’ Takeover Offer is FAIR and REASONABLE.
The Independent Expert has valued 100% of the shares in Auspine at between $6.57 to $7.25
and recommended Auspine shareholders accept the Offer.
This Target’s Statement includes, in Annexure A, a copy of the Concise Independent Expert’s Report.
Auspine Directors recommend that you read that report. The full Independent Expert’s Report can
be viewed at, and downloaded from, Auspine’s website at www.auspine.com.au.
Lonergan Edwards is independent of Auspine and Gunns, and has no involvement with, or interest
in, the outcome of the Offer other than the preparation of the IER.
3
The Offer represents a 13.8% premium to Gunns’ previous Offer.
Gunns’ previous cash bid, which closed on 31 August 2007, was for $6.15 per share.
At $7.00 per share, the Gunns’ Offer represents a 13.8% increase on the first offer.
4
The Gunns’ Takeover Offer is unconditional.
Gunns has attached no conditions to its Offer.
A U S P I N E
L I M I T E D
T A R G E T ’ S
S T A T E M E N T
3
F R E Q U E N T LY AS K E D Q U E ST I O N S
This section answers some commonly asked questions about the Gunns’ Takeover Offer. It is not intended
to address all relevant issues for Auspine Shareholders. This section should be read together with all
other parts of this Target’s Statement as well as the Gunns Bidder’s Statement.
Who is Gunns Limited?
Refer to Section 3 of Gunns Bidder’s Statement.
What am I being offered under
Gunns is offering $7.00 cash for each Auspine share you hold.
the Gunns’ Takeover Offer?
If the Gunns’ Takeover Offer is successful, acceptance of the Gunns’ Offer may
result in a taxable capital gain for Auspine Shareholders.
Further information on the tax considerations is set out in Section 7 of
the Gunns Bidder’s Statement. Auspine Shareholders should receive
their own professional advice regarding the individual tax consequences
applicable to them.
What are the Independent Directors of
The Independent Directors of Auspine recommend that you accept Gunns’ Offer.
Auspine recommending?
What options do I have as an
As an Auspine Shareholder, you have the following choices in respect of
Auspine Shareholder?
your shares:
–
do nothing.
–
accept the Offer; or
–
sell your shares on the ASX (unless you have previously accepted the
Offer and you have not validly withdrawn your acceptance);
When do I have to make a decision?
The Offer is scheduled to close at 7 pm AEST on 18 January 2008.
How do I accept the Offer?
Refer to Section 9.3 of the Gunns Bidder’s Statement and associated
instructions on the Acceptance Form.
4
F R E Q U E N T LY AS K E D Q U E ST I O N S
If I accept the Gunns’ Takeover Offer, can I
No.
withdraw my acceptance at any time?
Please see Section 9.5 of the Gunns Bidder’s Statement for further information.
What happens if I do nothing?
If you do nothing and Gunns acquires 90% or more of the Auspine shares
on issue Gunns has indicated its intention to compulsorily acquire your shares
for $7.00 cash per share.
Does the Gunns’ Takeover Offer contain
No.
any conditions?
The offer is unconditional.
What are the tax implications of accepting
Auspine Directors recommend that you obtain independent taxation advice
the Gunns’ Takeover Offer?
from a qualified professional.
However, a summary of taxation consequences of accepting the Gunns’
Takeover Offer is set out in Section 7 of the Gunns Bidder’s Statement.
When will I be sent my consideration if I
Please refer to Section 9.6 of Gunns Bidder’s Statement.
accept the Offer?
What if I am a Foreign Auspine Shareholder?
If you a foreign Auspine Shareholder, please refer to Section 7.3 of the
Gunns Bidder’s Statement.
Is there a number that I can call if I have
If you have any further queries in relation to the Gunns’ Takeover Offer or
further queries in relation to the Offer?
this Target’s Statement you can send an email to the Auspine Shareholder
email helpline: gtb@auspine.com.au.
Announcements made to ASX by Auspine and other information relating
to the Gunns’ Takeover Offer can be obtained from Auspine’s website
at www.auspine.com.au.
A U S P I N E
L I M I T E D
T A R G E T ’ S
S T A T E M E N T
5
K EY T E R M S O F T H E O F F E R
Offer Consideration
A$7.00 cash per Auspine share.
Offer Period
Unless extended, the Offer is open for acceptance from 27 November 2007 until 7 pm AEST on 18 January 2008.
Conditions on Offer
There are no conditions attached to the Offer.
Compulsory Acquisition
Gunns has indicated in its Bidder’s Statement that if it becomes entitled to compulsorily acquire your Auspine
shares under the Corporations Act, it intends to do so.
Gunns will be entitled to compulsorily acquire any Auspine shares in respect of which it has not received
acceptance of the Gunns’ Takeover Offer if, during or at the end of the Offer Period, Gunns has a relevant
interest in at least 90% of Auspine shares on issue and at least 75% in number of the Auspine shares subject
to Gunns’ Offer. If these thresholds are met, Gunns will have one month after the end of the Offer Period
within which to give a compulsory acquisition notice to Auspine Shareholders who have not accepted the
Gunns’ Takeover Offer.
Auspine Shareholders may challenge the compulsory acquisition, but a successful challenge will require the
Shareholder to establish to the satisfaction of a court that the consideration offered does not represent “fair
value” for their Auspine shares.
If compulsory acquisition occurs, Auspine Shareholders who have their Auspine shares compulsorily acquired
will be paid their consideration later than Auspine Shareholders who accept the Gunns’ Takeover Offer.
Your choices as an Auspine Shareholder
The Independent Directors Recommend that you
ACCEPT the Gunns’ Takeover Offer.
However, as an Auspine Shareholder, you have the following choices in respect of your Shares:
–
do nothing;
–
accept the Offer; or
–
sell your shares on the ASX (unless you have previously accepted the Offer).
Taxation Consequences
A summary of taxation consequences of accepting the Gunns’ Takeover Offer is set out in Section 7 of the
Gunns Bidder’s Statement.
6
I N F O R M AT I O N R E L AT I N G
TO D I R E C TO R S
This section provides further information regarding the Directors of Auspine and their interests.
Relevant Interests in Auspine shares of Auspine Directors
Name
Relevant Interest
P D Teisseire
23,500
A de Bruin
16,345,672
J E Gay
nil
R T Gray
nil
R T J Holyman
nil
C J Newman
nil
R H Graham
nil
There are currently no Share Options or Share Acquisition Rights on issue.
Directors Dealings in Auspine Shares
No Auspine Director has acquired or disposed of a relevant interest in Auspine shares in the four month period
immediately preceding the date of this Target’s Statement, except as follows:
Adrian de Bruin acquired 326,607 shares.
Relevant Interests in Gunns’ shares of Auspine Directors
As at the date immediately before the date of this Target’s Statement, Auspine Directors had a relevant interest
in the following Gunns Securities.
Name
Relevant Interest
P D Teisseire
nil
A de Bruin
nil
J E Gay
18,606,241
R T Gray
267,066
R T J Holyman
580,278
C J Newman
2,775,684
R H Graham
nil
A U S P I N E
L I M I T E D
T A R G E T ’ S
S T A T E M E N T
7
I N F O R M AT I O N R E L AT I N G
TO D I R E C TO R S
Dealings in Gunns Shares
No Director of Auspine has acquired or disposed of a relevant interest in any securities issued by Gunns in the
four month period ending on the date immediately before the date of this Target’s Statement, except as follows:
J E Gay acquired 184,034 shares via the Gunns dividend reinvestment plan.
R T Gray acquired 7,003 shares via the Gunns dividend reinvestment plan.
R T J Holyman acquired 8,347 shares via the Gunns dividend reinvestment plan.
Intentions of your Directors in relation to the Gunns’ Takeover Offer
Each Director of Auspine who has a relevant interest in Auspine shares intends to accept the Gunns’ Takeover
Offer in relation to those shares.
An Independent Expert’s Report has been commissioned by the Auspine Directors to provide Auspine
Shareholders with an independent recommendation from a party without a relevant interest in Auspine.
This is intended to further provide Auspine Shareholders with a fair and balanced assessment of the
Gunns’ Takeover Offer.
Benefits and Agreements
Retirement Benefits as a Result of Gunns Takeover Offer
Non-Executive Directors appointed before 29 April 2003 are entitled to receive retirement benefits in
accordance with a Shareholder approved plan.
Under the plan, Directors are entitled to payment of the benefit due to retirement in connection with the
Gunns’ Takeover Offer.
The Gunns’ Takeover Offer will not result in any Auspine Director or any other person being given any benefit
(other than a benefit which can be given without member approval under the Corporations Act) in connection
with retirement of that Auspine Director or other person from the Board or management of Auspine.
Agreements Connected With or Conditional on Gunns’ Takeover Offer
There are no agreements or arrangements between any Director of Auspine and any person in connection
with, or conditional upon, the outcome of the Gunns’ Takeover Offer.
8
I N F O R M AT I O N R E L AT I N G
TO D I R E C TO R S
Interests of Directors in Contracts with Gunns
None of the Non Gunns Directors has any interest in any contract entered into with Gunns.
Deeds of Indemnity, Insurance and Access to documents
Auspine has entered into Deeds of Indemnity, Insurance and Access to documents with the Non Gunns
Directors and certain officers of the Company.
The Deeds indemnify each person to the maximum extent permitted by law, against:
•
•
certain liabilities incurred in their capacity as an officer of Auspine; and for
costs incurred by the officer defending or settling any such claims.
The indemnity applies while each person is an officer of Auspine and for a period of seven years from the date
he ceases to be an officer of Auspine.
The Deed also requires that while each person is an officer of Auspine and for a period of seven years from the
date he ceases to be an officer of Auspine, Auspine must:
•
•
take out and keep current a Directors and Officers Liability Insurance Policy; and
retain and provide each person with access to Board documentation
None of the Directors of Auspine has agreed to receive, or is entitled to receive, any benefit from Gunns which
is conditional on, or is related to the Gunns’ Takeover Offer, other than in his capacity as a holder of shares
and as described above.
Directors Disclaimer
Section 638 of the Corporations Act provides that a Target’s Statement must include all the information that
holders of bid-class securities and their professional advisers would reasonably require to make an informed
assessment whether to accept the offer under the bid, but only:
•
to the extent to which it is reasonable for investors and their professional advisers to expect to find the
information in this statement; and
•
if the information is known to any of the Directors of the Target.
A U S P I N E
L I M I T E D
T A R G E T ’ S
S T A T E M E N T
9
I N D E P E N D E N T E X P E RT ’ S R E P O RT
This Target’s Statement includes, in Annexure A, a copy of a concise report by Lonergan Edwards
(an independent expert not associated with either Auspine or Gunns) stating whether, in its opinion, the Offer
is fair and reasonable and giving reasons for forming that opinion.
Auspine Directors recommend that you read that report. The full report can be viewed at and downloaded
from Auspine’s website at www.auspine.com.au.
Lonergan Edwards, the Independent Expert, has concluded:
–
the value of Auspine Shares lies between $6.57 to $7.25 per share;
–
the Gunns’ Takeover Offer is FAIR and REASONABLE; and
–
recommends Auspine shareholders accept the Offer.
Your Independent Directors agree with the Independent Expert’s opinion that the Gunns’ Takeover Offer is fair
and reasonable.
AU T H O R I S AT I O N O F TA R G E T
STAT E M E N T
This Target’s Statement has been approved by a resolution passed by both Independent Directors.
The Directors nominated by Gunns to the Auspine Board following Gunns’ previous offer, being J E Gay,
R T Gray, R T J Holyman and C J Newman, were not present during consideration of the resolution and did not
vote on it. Mr de Bruin was present during the consideration of the resolution but did not vote on it.
Dated 4 December 2007.
Signed for and on behalf of Auspine Limited.
Paul Teisseire
Chairman
10
G LO S S A RY
A N D I N T E R P R E TAT I O N
Term
Meaning
Acceptance Form
The form of acceptance and transfer for the offer accompanying
the Bidder’s Statement
Auspine
Auspine Limited (ABN 48 004 289 730)
Announcement Date
The date Gunns announced their offer, being 27 November 2007
AEST
Australian Eastern Standard Time
ASIC
Australian Securities and Investment Commission
ASX
Australian Securities Exchange
Bidder’s Statement
The bidder’s statement in relation to Gunns’ Takeover Offer
prepared by Gunns and dated 27 November 2007
Board or Auspine Board
The Board of Directors of Auspine Limited
Corporations Act
The Corporations Act 2001 (Cth)
Gunns
Gunns Limited (ABN 29 009 478 148)
Gunns’ Takeover Offer or Gunns’ Offer
or the Offer
The takeover offer by Gunns to acquire all the Auspine shares in
the terms and conditions set out in the Bidder’s Statement dated
27 November 2007
Independent Directors
Paul Teisseire and Robert Graham
Independent Expert
Lonergan Edwards & Associates Limited (ABN 53 095 445 560)
Independent Expert’s Report
The independent experts report prepared by the independent expert and
dated 4th December 2007, the concise version of which is incorporated
in Annexure A to this Target’s Statement
Non Gunns Directors
Each of Paul Teisseire, Adrian de Bruin and Robert Graham
Offer Period
The period during which Gunns’ Takeover Offer will remain open
for acceptances in accordance with the bidder’s statement, namely
27 November 2007 until 18 January 2008
Target’s Statement
This document (including annexure A) being the statement of
Auspine under Part 6.5 division 3 of the Corporations Act relating to
Gunns’ Takeover Offer
A U S P I N E
L I M I T E D
T A R G E T ’ S
S T A T E M E N T
11
AUSPINE DIRECTORS
RECOMMEND
THAT YOU
ACCEPT
GUNNS’ OFFER
12
ANNEXURE
A
CONCISE INDEPENDENT
EXPERT’S REPORT
by
LONERGAN EDWARDS
& ASSOCIATES LIMITED
A U S P I N E
L I M I T E D
T A R G E T ’ S
S T A T E M E N T
13
The Independent Directors
Auspine Limited
20 Penola Road
Mount Gambier SA 5290
ABN 53 095 445 560
AFS Licence No 246532
Level 27, 363 George Street
Sydney NSW 2000 Australia
GPO Box 1640, Sydney NSW 2001
Telephone: [61 2] 8235 7500
Facsimile: [61 2] 8235 7550
www.lonerganedwards.com.au
4 December 2007
Subject:
Takeover offer by Gunns Limited – Concise Report
Dear Sirs
Introduction
1
On 27 November 2007 Gunns Limited (Gunns) announced that it would make
an unconditional takeover offer (the Offer) for all the shares in Auspine
Limited which it does not already own. Auspine shareholders who accept the
Offer will receive $7.00 cash per share.
2
Prior to the announcement of the Offer Gunns held 60.80% of the shares on
issue in Auspine. This shareholding was principally acquired through:
(a)
the acquisition of a 25.1% interest in Auspine from a group of Auspine
shareholders who had invited offers for their combined shareholding.
The price paid was $6.15 cash or 1.83 Gunns shares for each Auspine
share (at the selling shareholders election)1
(b)
further acquisitions of shares under an off-market takeover offer
(which closed on 31 August 2007) for all the shares in Auspine that it
did not own at the same price set out in (a) above.
3
Interests associated with Auspine’s managing director, Mr Adrian de Bruin,
hold 30.30% of the Auspine shares and have stated that they intend to accept
the $7.00 per share cash Offer.
4
Auspine is a vertically integrated forestry company involved in the growing
and harvesting, manufacturing and sales of timber products in both domestic
and export markets. Its activities include forestry plantation and harvesting,
manufacturing of house framing, pre fabricated wall frames and trusses,
engineering timber products and preserved timbers, wholesaling and
distribution of local and imported timbers and export of woodchip. Auspine
owns approximately 46,000 hectares of freehold land and owns or manages
1
Shareholders owning 57% of the shares tendered elected to receive cash consideration and 43%
elected to receive Gunns shares as consideration.
Liability limited by a scheme approved under Professional Standards Legislation
1
more than 40,000 hectares of forest plantations in Tasmania, South Australia
and Victoria.
5
Gunns Limited (Gunns) is Australia’s largest fully integrated hardwood based
forest products company and had a market capitalisation as at 26 November
2007 of approximately $1.4 billion. Gunns owns over 200,000 hectares of
freehold land and manages in excess of 125,000 hectares of plantations in
addition to its investment in Auspine. It has manufacturing operations for a
range of forest products in Tasmania, Western Australia and New Zealand and
a number of other businesses in the merchandising, construction and wine
sectors.
6
Due to the size of Gunns’ shareholding in Auspine, and the fact that Auspine
and Gunns have common directors, there is a statutory requirement for
Auspine to obtain an Independent Expert’s Report (IER). Accordingly, the
Independent Directors of Auspine have requested that Lonergan Edwards &
Associates Limited (LEA) prepare an IER stating whether, in LEA’s opinion,
the Offer is “fair and reasonable”.
7
LEA is independent of Auspine and Gunns and has no involvement with, or
interest in, the outcome of the Offer other than the preparation of this report.
Valuation of Auspine
8
LEA has valued 100% of the shares in Auspine at between $6.57 to $7.25 per
share as summarised below:
Value of Auspine
Value of plantation land, plantations and related
assets
Value of Wood Products businesses
Capitalised value of corporate costs
Enterprise value
Less net debt
Value of 100% of shares in Auspine
Fully diluted shares on issue
Value per share
9
Low
$m
369.5
High
$m
397.0
170.8
(32.0)
508.3
(154.0)
354.3
53.9
$6.57
184.0
(36.0)
545.0
(154.0)
391.0
53.9
$7.25
Our assessed value of $6.57 to $7.25 per Auspine share is 5.8% to 6.8%
higher than the value set out in our report dated 6 July 2007. This is
principally due to the performance of the Wood Products business which is
trading significantly ahead of the FY08 original budget as a result of price
increases due to continued strong demand for structural timber products.
2
Valuation methodology
10
In order to recognise the full underlying value of Auspine’s freehold land and
forest plantations we believe it is appropriate to value these assets separately
from Auspine’s timber manufacturing, wholesaling and distribution businesses
(which we have referred to as the Wood Products businesses).
11
The following valuation methods have therefore been adopted when valuing
Auspine:
Asset / liability
Freehold land, plantations and related
assets
Wood Products businesses(1)
Corporate costs
Other assets
Net debt
Primary valuation method
Market value based on independent valuations
Capitalisation of earnings method
Capitalisation of ongoing costs
Net realisable value
Market value of liabilities, taking into account
interest rate hedges
Note:
1 Representing Auspine’s timber manufacturing, wholesaling and distribution businesses.
Value of plantation land, plantations and related assets
12
Our assessed value of Auspine’s plantation land, plantation and related assets
is summarised below:
Auspine’s plantation land, plantation and related assets
Plantation land
Plantations
Other assets(1)
Covenant liability in connection with land
Accrued covenant holder distribution
Investments in MIS managed by Auspine
Allowance for DTL
Total value
Low
$m
205.0
170.0
7.7
(10.0)
(4.5)
10.8
(9.5)
369.5
High
$m
220.0
190.0
7.7
(10.0)
(4.5)
10.8
(17.0)
397.0
Note:
1 Depreciated replacement cost of access roads and woodchip export facility.
3
13
Auspine’s plantation land, plantations and other assets2 were independently
valued in June and July 2007. The value of the plantation land and other
assets reflects these independent valuations, which were undertaken by
Colliers International Consultancy and Valuation Pty Limited (Colliers) and
Rushton Valuers (Rushton) respectively.
14
Poyry Forestry Industry Pty Ltd (Poyry) independently valued Auspine’s
plantations as at 30 June 2007 at $167.8 million3. Further, Poyry have advised
that there have been no interim developments that would lead to a material
change in the assumptions employed in their report. Consequently, our
plantation value of $170 million is equal to the Poyry valuation adjusted to
reflect subsequent acquisitions of plantations, capitalised establishment and
maintenance costs, replantings, harvesting and fair value adjustments up to 31
October 2007.
15
For the purposes of our high valuation we have adopted a plantation value of
$190 million. In our opinion, it is appropriate to assume such valuation upside
in our high valuation because:
(a)
more recent transaction evidence has indicated lower discount rates
than the real pre-tax discount rate of 9.0% per annum adopted by
Poyry
(b)
demand for softwood suitable for structural applications in Australia is
expected to be in very tight supply in the near future and is expected to
remain so for some time
(c)
future softwood saw log demand is also expected to exceed supply
within the next few years
(d)
as a result of (b) and (c) above, in our opinion, softwood log prices in
the medium to long term are likely to exceed the prices assumed in the
Poyry valuation.
Value of Wood Products businesses
16
2
3
We set out below the normalised EBITDA over recent years of Auspine’s
Wood Products business (excluding the Singaporean business which has been
valued separately):
Being access roads and the Portland Export facility (which is used to export woodchips).
This value is net of the interests of covenant holders and investors.
4
Reported / budgeted EBITDA
Adjustments(1):
Frenchpine EBITDA
Reduction in EBITDA contribution
due to termination of Tasmanian log
supply contract
Impact of severe price discounting
Normalised EBITDA
Year to
30/6/05
Actual
$m
11.1
Year to
30/6/06
Actual
$m
16.6
Year to
30/6/07
Actual
$m
14.7
Year to
30/6/08
Forecast
$m
33.3
6.0
(4.7)
2.0
(5.6)
(3.0)
-
12.4
5.3
18.3
7.6
19.3
33.3
Note:
1 Further detail on the adjustments made is set out in our full report which is available
on Auspine’s website at www.auspine.com.au.
17
EBITDA in the four months to 31 October 2007 was around $10.0 million, a
significant improvement on that achieved in the prior corresponding period.
As a result of this performance management’s forecast for FY08 has been
revised up from $24.2 million as at 6 July 2007 to $33.3 million as at the date
of this report. The improved outlook largely reflects higher selling prices due
to continued strong demand for structural timber products.
18
Based on the above we have adopted EBITDA for valuation purposes of $26
million for the Wood Products businesses4. This excludes the contribution
from the Singaporean business which has been separately valued. While this
is less than the budgeted EBITDA for FY08 this reflects the cyclical nature of
the business and the above average margins currently being generated by the
business.
19
As there are no directly comparable listed companies in Australia, in our
opinion, more regard should be had to recent Australian transaction evidence
when assessing the appropriate EBITDA multiple to apply.
4
Our assessed EBITDA exceeds the EBITDA adopted for valuation purposes in our report dated 6 July
2007 and reflects the improved outlook for the business.
5
20
Relevant Australasian transaction evidence is summarised below:
Transaction evidence
Date(1)
Oct 05
Jun 05
Dec 04
Sep 04
Target(2)
Frenchpine
Davis & Herbert / Fennings
Tenon Structural Timber
Neville Smith Group
Acquirer
Auspine
Boral
Carter Holt Harvey
Integrated Tree
Cropping
Consideration
$m
A$33
A$25
NZ$165
A$120
EBITDA multiple
Historic Forecast
5.5
5.4
6.0
n/a
6.5
n/a
11.0
8.5
Note:
1 Date of announcement.
2 A brief description of each target company is set out in Appendix D.
21
More recently the wood products business of Carter Holt Harvey Limited
(CHH) and the wood processing division of Integrated Tree Cropping Limited
(ITC) have been acquired by Rank Group and Futuris Corporation Limited
respectively. However, as these businesses were acquired as part of the larger
CHH and ITC groups (which were taken over) it is not possible to directly
observe the price paid for these businesses or the implied earnings multiples.
22
However, we summarise below the independent expert’s valuations of these
businesses and the implied EBITDA multiples:
Date of
report
February 2006
Business valued
CHH Wood Products
June 2006
ITC Wood Processing
Valuation
range
NZ$925m –
NZ$1,200m
A$64 – A$72
Historical
EBITDA
multiple
range
7.4 – 9.6
Forecast
EBITDA
multiple
range
6.2 – 8.0
n/a
8.0(1)
Note:
1 Represents a multiple of maintainable EBITDA (which exceeded FY06 EBITDA).
6
23
Based on the above we have assessed the value of the Wood Products
businesses (prior to any allocation of corporate costs) at $170.8 million to
$184.0 million, as shown below:
Low
$m
26.0
6.5
169.0
1.8
170.8
EBITDA
EBITDA multiple
Value of Singaporean business(1)
Value of Wood Products businesses
High
$m
26.0
7.0
182.0
2.0
184.0
Note:
1 This value represents an EBITDA multiple of 4.5 to 5.0 and is consistent with the
carrying value of this business.
Capitalised value of corporate costs
24
Currently Auspine’s on-going corporate costs are around $7.5 million per
annum. However, in our opinion, the level of these costs could be reduced,
and further cost reductions could be achieved by a purchaser of 100% of
Auspine.
25
Having regard to the level of these potential savings (and other synergies) we
have adopted a capitalised value for corporate costs of negative $32.0 million
to negative $36.0 million.
Opinion and recommendation
26
Pursuant to Australian Securities and Investments Commission (ASIC)
Regulatory Guide 111, an offer is “fair” if:
“The value of the offer price or consideration is equal to or greater than the
value of the securities the subject of the offer.”
27
This comparison is shown below:
Cash Offer consideration (per share)
Value of 100% of Auspine (per share)
Extent to which Offer exceeds (is less than)
value per share
Low
$
7.00
6.57
0.43
High
$
7.00
7.25
(0.25)
Mid-point
$
7.00
6.91
0.09
7
28
As the consideration offered by Gunns ($7.00 cash per share) is consistent
with our assessed value for 100% of the shares in Auspine ($6.57 to $7.25 per
share), in our opinion, the Offer is fair when assessed based on the guidelines
set out in Regulatory Guide 111.
29
Pursuant to Regulatory Guide 111, an offer is reasonable if it is fair.
Consequently, in our opinion, the Offer is fair and reasonable.
30
We therefore recommend that Auspine shareholders accept the Offer, and also
note that:
(a)
interests associated with Mr Adrian de Bruin (who hold 30.30% of
Auspine shares) intend to accept the Offer
(b)
as a result of (a) it is likely that Gunns will be able to compulsorily
acquire the remaining shares in Auspine at the same price as paid
under the Offer5
(c)
the Offer is unlikely to be increased
(d)
no alternative offer is likely to be made for Auspine prior to the close
of the Offer
(e)
the Offer consideration represents a significant premium to the
consideration under the previous offer (which closed on 31 August
2007) of $6.15 cash per share or 1.83 Gunns shares for each Auspine
share.
Other matters
31
The impact of accepting the Offer on the tax position of Auspine shareholders
depends on the individual circumstances of each investor. Shareholders
should consult their own professional advisers if in doubt as to the taxation
consequences of the Offer.
32
The ultimate decision whether to accept the Offer should be based on each
shareholder’s assessment of their own circumstances, including their risk
profile, liquidity preference, tax position and expectations as to value and
future market conditions. If shareholders are in doubt about the action they
5
Acceptances under the Offer by at least 75% of Auspine shareholders (by number) are also required
in order for Gunns to compulsorily acquire the remaining shares.
8
should take in relation to the Offer or matters dealt with in this report,
shareholders should seek independent professional advice. For our full
opinion on the Offer, and the reasoning behind our opinion, we recommend
that Auspine shareholders read our full report which is available on Auspine’s
website at www.auspine.com.au.
Yours faithfully
Craig Edwards
Authorised Representative
Wayne Lonergan
Authorised Representative
9
Appendix A
Financial Services Guide
Lonergan Edwards & Associates Limited
1
Lonergan Edwards & Associates Limited (ABN53 095 445 560) (LEA) is a
specialist valuation firm which provides valuation advice, valuation reports
and Independent Expert’s Reports in relation to takeovers and mergers,
commercial litigation, tax and stamp duty matters, assessments of economic
loss, commercial and regulatory disputes.
2
LEA holds Australian Financial Services Licence No 246532.
Financial Services Guide
3
The Corporations Act 2001 authorises LEA to provide this Financial Services
Guide (FSG) in connection with its provision of an Independent Expert’s
Report (the Report) to accompany a notice of general meeting and explanatory
statement to be sent to Auspine shareholders in connection with the Offer.
4
This FSG is designed to assist retail clients in their use of any general financial
product advice contained in the Report. This FSG contains information about
LEA generally, the financial services we are licensed to provide, the
remuneration we may receive in connection with the preparation of the Report,
and if complaints against us ever arise how they will be dealt with.
Financial services we are licensed to provide
5
Our Australian financial services licence allows us to provide a broad range of
services to retail and wholesale clients, including providing financial product
advice in relation to various financial products such as securities, derivatives,
interests in managed investment schemes, superannuation products,
debentures, stocks and bonds.
General financial product advice
6
The Report contains only general financial product advice. It was prepared
without taking into account your personal objectives, financial situation or
needs.
7
You should consider your own objectives, financial situation and needs when
assessing the suitability of the Report to your situation. You may wish to
obtain personal financial product advice from the holder of an Australian
Financial Services Licence to assist you in this assessment.
10
Appendix A
Fees, commissions and other benefits we may receive
8
LEA charges fees to produce reports, including this Report. These fees are
negotiated and agreed with the entity who engages LEA to provide a report.
Fees are charged on an hourly basis or as a fixed amount depending on the
terms of the agreement with the person who engages us. In the preparation of
this Report our fees are based on a time cost basis using agreed hourly rates.
9
Neither LEA nor its directors and officers receives any commissions or other
benefits, except for the fees for services referred to above.
10
All of our employees receive a salary. Our employees are eligible for bonuses
based on overall performance and the firms profitability and do not receive
any commissions or other benefits arising directly from services provided to
you. The remuneration paid to our directors reflects their individual
contribution to the company and covers all aspects of performance. Our
directors do not receive any commissions or other benefits arising directly
from services provided to you.
11
We do not pay commissions or provide other benefits to other parties for
referring prospective clients to us.
Complaints
12
If you have a complaint, please raise it with us first, using the contact details
listed below. We will endeavour to satisfactorily resolve your complaint in a
timely manner.
13
If we are not able to resolve your complaint to your satisfaction within 45 days
of your written notification, you are entitled to have your matter referred to the
Financial Industry Complaints Services (FICS), an external complaints
resolution service. You will not be charged for using the FICS service.
Contact details
14
LEA can be contacted by sending a letter to the following address:
Level 27
363 George Street
Sydney NSW 2000
(or GPO Box 1640, Sydney NSW 2001)
11
Appendix B
Qualifications, declarations and consents
Qualifications
1
LEA is a licensed investment adviser under the Corporations Act. LEA’s
authorised representatives have extensive experience in the field of corporate
finance, particularly in relation to the valuation of shares and businesses and in
the preparation of Independent Expert’s Reports to shareholders.
2
This report was prepared by Mr Craig Edwards and Mr Wayne Lonergan who
are each authorised representatives of LEA. Mr Edwards and Mr Lonergan
have over 13 years and 30 years experience respectively in the provision of
valuation advice.
Declarations
3
This report has been prepared at the request of the Independent Directors of
Auspine to be sent to Auspine shareholders. It is not intended that this report
should serve any purpose other than as an expression of our opinion as to
whether or not the Offer is fair and reasonable to the shareholders of Auspine.
Interests
4
At the date of this report, neither LEA, Mr Edwards nor Mr Lonergan have
any interest in the outcome of the Offer. LEA is entitled to receive a fee for
the preparation of this report based on time expended at our standard hourly
professional rates. With the exception of the above fee, LEA will not receive
any other benefits, either directly or indirectly, for or in connection with the
preparation of this report.
Limitations and reliance on information
5
Our opinion is based on economic, market and other conditions prevailing at
the date of this report.
6
Our report is also based upon financial and other information provided by
Auspine and other publicly available information. We have considered and
relied upon this information and believe that the information provided is
reliable, complete and not misleading and we have no reason to believe that
material facts have been withheld. The information provided was evaluated
through analysis, enquiry and review for the purpose of forming an opinion as
to whether the Offer is fair and reasonable. However, in assignments such as
this, time is limited and we do not warrant that our enquiries have identified or
verified all of the matters which an audit, extensive examination or “due
diligence” investigation might disclose. None of these additional tasks have
been undertaken.
12
Appendix B
7
We understand the accounting and other financial information that was
provided to us has been prepared in accordance with the Australian equivalent
to International Financial Reporting Standards (AIFRS).
8
An important part of the information base used in forming an opinion of the
kind expressed in this report is the opinions and judgement of management.
This type of information has also been evaluated through analysis, enquiry and
review to the extent practical. However, it must be recognised that such
information is not always capable of external verification or validation.
9
We in no way guarantee the achievability of the forecasts of future profits.
Forecasts are inherently uncertain. They are predictions by management of
future events which cannot be assured and are necessarily based on
assumptions of future events, many of which are beyond the control of
management. Actual results may vary significantly from forecasts.
10
We have assumed that these forecasts have been prepared fairly and honestly
based on the information available to management at the time and within the
practical constraints and limitations of such forecasts. We have assumed that
the forecasts do not reflect any material bias. We have no reason to believe
that these assumptions are inappropriate.
Indemnification
11
As a condition of LEA’s agreement to prepare this report, Auspine agrees to
indemnify LEA in relation to any claim arising from or in connection with its
reliance on information or documentation provided by or on behalf of Auspine
which is false or misleading or omits material particulars or arising from any
failure to supply relevant documents or information.
Consents
12
LEA consents to the inclusion of this report in the form and context in which it
is included in Auspine’s Target Statement.
13
Appendix C
Glossary
AIFRS
ASIC
ASX
Auspine
CHH
Colliers
DCF
EBIT
EBITDA
EPS
FEA
FICS
FSG
FY
GPL
Gunns
IER
ITC
LEA
MIS
NPV
Offer
PE
Poyry
Rushton
USD
VWAP
Australian equivalent to International Financial
Reporting Standards
Australian Securities and Investments Commission
Australian Securities Exchange
Auspine Limited
Carter Holt Harvey Limited
Colliers International Consultancy and Valuation Pty
Limited
Discounted cash flow
Earnings before interest and tax
Earnings before interest, tax, depreciation and
amortisation
Earnings per share
Forest Enterprises Australia Limited
Financial Industry Complaints Services
Financial Services Guide
Financial year
Gunns Plantations Ltd
Gunns Limited
Independent Expert’s Report
Integrated Tree Cropping Limited
Lonergan Edwards & Associates Limited
Managed investment schemes
Net present value
The takeover offer by Gunns for all the shares in
Auspine of $7.00 cash per Auspine share
Price earnings
Poyry Forestry Industry Pty Ltd
Rushton Valuers
United States dollar
Volume weighted average price
14
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