WFP Asks for Pay-Day Loan

This blog is in response to this news article, which announces Western Forest Product’s desperate plan to raise $50 million in cash through a share offering.

Companies generally don’t offer up new shares except on the back of an increase in net assets or value, like when Western Forest Products bought Cascadia Forest Products using cash generated from a share offering (this was the example Western’s CFO used in the news article). Otherwise, existing shareholders would bebackhanded by a dilution of the value of the shares that they alreadyown.

Which begs the question:  since the purchase of Cascadia, where has Western acquired a netincrease in $50 million in new assets or value? Especially given theirrecent asset selling streak…e.g. their New Westminster sawmill, DukePoint merchandiser, miscellaneous equipment, etc.

I suppose they have poured some upgrades into some of their mills,but that was more a consolidation of value following the Cascadia andEnglewood takeovers rather than an addition, because the upgrades werelinked to shutting down or curtailing operations elsewhere.

Quote: “Western is exploring whether there is more value in selling26,500 hectares of private timberland and applying the proceeds toreduce long term debt”

The only place I can see a gain of assets or value is from the BCLiberals generous deletion of 28,000 Ha from Western’s TFLs, freeing upthe lands’ value as real-estate. In Western’s books, the value of theselands are classified under ‘non core assets’. Early on it seemed theywere only considering selling a small portion of the deleted lands (e.g. their 2007 AGM presentation), buttheir 2008 AGM presentation suggests they’re now looking atselling virtually all of it. 

Western has already sold some of the choicest bits of that land for a paltry $3 million, but plenty remains.

I’m no expert, but I would say you can look at Western’s share offering in twoways:

  1. As based on an increase in the value of their private landsresulting from the 2007 TFL deletions, and
  2. As a request for apay-day advance from their shareholders on the cash they hope to raisethrough the selling of the deleted land and other remaining ‘non coreassets’.

The trouble for Western is that the realizable value of the deletedlands (which comprises the majority of their remaining non-core assetvalue) is heavily influenced by the efforts of local residents andFirst Nations who don’t want to see the land developed. This is a fightthat Western has little control over because most people’s beef restssquarely with government’s decision to delete the lands in the firstplace.

If I was a Western shareholder I would decline the share offering and put my money elsewhere. LetTricap buy up the whole $50 million; they own most of the companyanyway (~70%), it’ll be like giving a loan to themselves.

As a British Columbian however, I feel it’s unfortunate that Tricapwill increase their ownership in Western through this offering, becauseit hands out even more control of Western – a local company thatthrough its predecessors has received decades worth of support andsubsidies from our government all in the name of jobs – to Tricap, a wholly owned subsidiary of a distant company that has little interest in maintaining jobs if real-estate values beckon.

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