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 be backhanded by a dilution of the value of the shares that they already own.

Which begs the question:  since the purchase of Cascadia, where has Western acquired a net increase in $50 million in new assets or value? Especially given their recent asset selling streak...e.g. their New Westminster sawmill, Duke Point 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 and Englewood takeovers rather than an addition, because the upgrades were linked to shutting down or curtailing operations elsewhere.

The only place I can see a gain of assets or value is from the BC Liberals generous deletion of 28,000 Ha from Western's TFLs, freeing up the lands' value as real-estate. In Western's books, the value of these lands are classified under 'non core assets'. Early on it seemed they were only considering selling a small portion of the deleted lands (e.g. their 2007 AGM presentation), but their 2008 AGM presentation suggests they're now looking at selling 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 two ways:

1. As based on an increase in the value of their private lands resulting from the 2007 TFL deletions, and
   
2. As a request for a pay-day advance from their shareholders on the cash they hope to raise through the selling of the deleted land and other remaining 'non core assets'.
   

The trouble for Western is that the realizable value of the deleted lands (which comprises the majority of their remaining non-core asset value) is heavily influenced by the efforts of local residents and First Nations who don't want to see the land developed. This is a fight that Western has little control over because most people's beef rests squarely with government's decision to delete the lands in the first place.

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

As a British Columbian however, I feel it's unfortunate that Tricap will increase their ownership in Western through this offering, because it hands out even more control of Western - a local company that through its predecessors has received decades worth of support and subsidies 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.