What the big boys are doing
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.