What the big boys are do­ing

Finweek English Edition - - Cover Cover - MOST

of the sig­nif­i­cant in­sti­tu­tional share­hold­ers in Sappi have al­ready in­di­cated they will sub­scribe for their full en­ti­tle­ment un­der the R5,8bn rights of­fer. The largest is Al­lan Gray, which holds more than 25% of Sappi. Though it’s a ma­jor in­vest­ment for the as­set man­ager, in typ­i­cal con­trar­ian style, while it’s re­leased re­ports about why it likes Sappi as an in­vest­ment, Al­lan Gray’s en­thu­si­asm for the rights is­sue doesn’t seem over­whelm­ing.

Al­lan Gray re­ally has no op­tion un­less it wants to sub­stan­tially re­duce its hold­ing in Sappi, and then live with a lower share price. “From a fi­nan­cial point of view, the pric­ing of the rights is­sue doesn’t make any dif­fer­ence. If we fol­low our rights we’re in the same po­si­tion we were in be­fore. We will rec­om­mend to in­vestors to fol­low their rights,” says Al­lan Gray.

But what about the re­lated M-real ac­qui­si­tion? Here its an­swer is a lit­tle tense: “Al­lan Gray has ex­pressed its sup­port for the trans­ac­tion.” Ear­lier re­ports from port- fo­lio man­agers on why the firm was in­vested in Sappi noted its “in­con­sis­tent” track record, in­clud­ing a his­tory of in­con­sis­tent ac­qui­si­tions.

RMB As­set Man­age­ment, with 8% of Sappi, is prob­a­bly the sec­ond largest share­holder. It has an in­ter­est­ing view on the M-real ac­qui­si­tion: it’s not so much what Sappi is buy­ing but what it’s not buy­ing.

“The im­por­tant way to look at the rights is­sue and ac­qui­si­tion is we fol­low our rights and give cap­i­tal to Sappi – what as­sets is Sappi then go­ing to buy?” says RMB As­set Man­age­ment’s Stephen Brown. “What en­cour­ages us is the ca­pac­ity that will be taken out of the sys­tem through Sappi buy­ing M-real. There will be mill clo­sures, prob­a­bly tak­ing out about 600 000/t. That’s 6% of the ca­pac­ity in Europe.”

It may not be enough to get sup­ply and de­mand in bal­ance to sup­port fur­ther pa­per price in­creases, but it’s cer­tainly mov­ing in the right di­rec­tion.

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