sylvatech acquisition, page-2

Extract from today's announcement about the Tiwi Islands acquisiton. Can you believe they are considering progressing still after Cyclone Ingrid and feeling positive about this acquisition after what appears to be dropping price due to lack of shareholder support, and the chairman is also leaving? Diversification should reduce risk, but what is this acquisition doing? Why diversify and increase risk and have to setup infrastructure and staff off shore?

"Benefits of proposed acquisition:

Great Southern has not changed its view that the acquisition of Sylvatech provides the company with significant growth potential, providing access to up to 100,000 hectares of high rainfall, flat forestry land and the opportunity to work with the Tiwi Island people to develop and expand a viable forestry industry on the islands.

The company has reduced the total price payable for Sylvatech by some $9 million from its previous proposed offer, but the main motivation behind the previous proposed offer remains - being access to large volumes of forestry land, port and associated infrastructure and a viable forestry business. In fact, as a result of cyclone Ingrid, it is possible Great Southern will have access to additional second rotation land much earlier
than originally anticipated and some capital expenditure will now be deferred. Great Southern believes that these factors, together with the reduction in the total price payable for Sylvatech, adequately address the impact of Cyclone Ingrid.

It is noted that Cyclone Ingrid was one of most damaging cyclones in this region in recorded history, and it is considered a highly unusual event for the eye of a cyclone of such force to pass over land in the way in which Ingrid’s damaging core passed over the
Tiwi Islands.

It is also noted that the impact of the Cyclone on Sylvatech was compounded by the fact that its total operation was based on the Tiwi Islands, whereas this estate will represent only a small portion of the large estate already managed by the Great Southern Group."

Here's the funny bit about the risk:

"Great Southern has already identified a number of risk minimisation strategies in the unlikely event that a similar event occurred again. These include securing insurance cover (which preliminary discussions with underwriters indicate should be possible given the size and strength of Great Southern and the large and diverse nature of its total plantation estate) as well as forestry establishment design measures that could reduce the impact of a similar event in the future."

Well why not make the purchase and then spend some more dosh on "design measures that could" reduce risk.

What do you think?

Happy trading.