Usually it’s been capital raisings, not asset sales that companies have done in the current recapitalisation process.
Asset sales have in fact been few and far between and limited to small deals among property trusts, all of whom have been unable to sell major parcels of land, shopping centres and office blocks, because there are now buyers.
So it’s been a mixture of capital raising, impairment write-down of asset values and hang on.
Yesterday CSR Ltd added a restructure via a split up of its business model to the list of options.
It’s something that has been rumoured for over a year, it’s something the company has studied and rejected because of the volatility of markets and the absence of buyers.
But now that sharemarkets have rallied to higher levels and sugar prices are much firmer, CSR has swooped and revealed its revamp.
CSR said in a statement it was in the final stages of due diligence towards separating its sugar and renewable energy business (ethanol) and its building products operations into separate listed entities.
The company proposes to demerge its sugar and renewable energy business while retaining its building products, aluminium and property business, creating two separate listings on the ASX. (Source)
The news saw its shares end up 6% on a day in which the market fell 1.5%. CSR shares ended at $1.59, up 9 cents.
It’s not the first time CSR has done this: it separated a whole lot of building businesses, especially those in the US into Rinker.
It was floated, operated successfully and was then taken over in a long takeover battle by Cemex of Mexico, which paid top price just as the subprime mortgage crisis was starting and the US housing depression kicked off.
This week Holcim of Switzerland (which owns Queensland Cement) bought a whole lot of old Rinker assets in Australia from Cemex at a low price.
Sugar was CSR’s original business, when it started life as the Colonial Sugar Refining Co. It now produces 40% of the country’s raw sugar, and has 74% of a refined sugar joint venture business.
The company has moved away from sugar into beef, then into building products, iron ore, coal and oil and gas to diversify its businesses and try and give it certainty of earnings and cash flow.
Each move has ended in less than success: coal, oil and gas were sold off after the resources slump in the 1980s threatened to bring the company down.
Now sugar will be a stand alone company and highly cyclical. It will almost certainly be snapped up by a much bigger sugar player.
Building products though is in a tougher part of the economy where competition is low and therefore the chance for acquisitions and cost cuts much less.
"Today’s announcement is an important step in the evolution of CSR’s strategy and underlines the board’s resolve to maximise shareholder value from CSR’s mix of businesses," CSR chairman Ian Blackburne said in the statement.
"The proposed demerger recognises the fundamentally different strategic and operational characteristics of CSR’s businesses and is expected to facilitate better recognition of their value over time by creating two ASX-listed companies."
Investigation of the demerger would proceed "as expeditiously as possible", with an objective of completing a restructure before March 31, 2010, managing director Jerry Maycock said in the statement.
CSR has been reviewing its business structure and preparing for a possible separation for some time, he said.
"Improving market conditions, combined with the stronger performance and outlook for the sugar business, mean it is now an appropriate time to move forward with this proposal and address any issues associated with a demerger through formal due diligence," Mr Maycock said.
A decision to proceed with the transaction would be subject to regulatory and statutory approvals, market conditions, shareholder approval, and court approval of a scheme of arrangement.
Sugar prices are up 27%, but it’s the 27% rise in the local market since March that is the important figure, although the bouts of weakness over the past three days won’t be encouraging.
"The Sugar and Renewable Energy business is the clear market leader in raw sugar milling in Australia.
"It also has leading positions in sugar refining, ethanol production and cogeneration of renewable energy, with a growing proportion of stable earnings from these businesses.
"In raw sugar milling, CSR’s Sugar business is strategically located relative to the high growth Asian markets, maintains a globally cost competitive position compared to Brazil, the world’s largest sugar producer, and is also well positioned to meet growing demand for renewable energy and fuel through its ethanol and cogeneration capacity.
"Through its refining joint ventures, Sugar Australia and New Zealand Sugar, the business has strong brand positions and an excellent reputation for customer value and innovative products in both the food and beverage and retail sectors.
"CSR’s Building Products business enjoys a portfolio of Australia’s leading brands in the residential and commercial building sectors, with a particular focus on energy efficient building products.
"This business would hold the investment in Gove Aluminium Finance, which is a joint venture participant in the Tomago aluminium smelter, one of the world’s lower cost and more efficient smelters, as well as retaining responsibility for CSR’s contingent product liabilities."
