Issue #1567 3 October 2012
Gunns, the company felled by greed
Last Tuesday Gunns Limited, Australia’s biggest timber company, was placed in receivership. This was greeted with relief by those who opposed the company’s clear felling of old growth forests and its proposal to establish a huge wood pulp mill in the Tamar Valley.
A protest in 2009 against the Gunns pulp mill.
However, Gunns’ failure has resulted in the loss of 50 positions, and threatens the jobs of hundreds of workers throughout the nation. The closure of some of the company’s existing plants will be a savage blow for the economy in Tasmania, where it was the biggest private employer.
Following the announcement, the receivers realised the company could not raise enough money to make 50 redundancy payments. The employees then occupied the Launceston offices of the ANZ Bank, after which the group of banks headed by ANZ to which the company was indebted paid up.
Gunns was established in 1875. In 1986 the company was floated on the stock market, after members of the Gunn family decided to cash in their shareholdings. Gunns had useful contacts in parliament, but in 1989 its chairman Edmund Rouse was convicted of trying to bribe a Labor MP in order to get him to cross the floor and vote against the government, which wanted to place restrictions on logging. The premier Robin Gray, who was criticised by the court, later joined the Gunns board.
In the 1990s the timber industry suffered a number of setbacks, and Gunns’ competitors Boral and North Forests decided to sell their Tasmanian holdings. Intoxicated with the prospect of taking over 85 percent of the state’s timber industry, Gunns’ managing director John Gay borrowed $423.5 million and Gunns acquired 60,000 hectares of old growth and plantation timber.
Gay and his fellow directors decided they could repay the loan by expanding their operations. They set about acquiring many of the tracts of forests that were periodically released by Forestry Tasmania. Their aim was to clear fell and convert them to timber plantations, at an anticipated cost of $500 million, with a view to offering plantation lots to investors.
The company ignored public anger at the scheme’s massive destruction of the wilderness. It also ignored the dire implications of gross indebtedness. The company’s realisable assets only amounted to $56 million.
The lots were marketed for Gunns by companies that ran managed investment schemes (MIS), which depended on huge tax breaks offered to investors in plantation timber. The destruction of the Tasmanian wilderness would not only make certain people very rich, it was to be accomplished at taxpayers’ expense
The massive burden of Gunns’ loan repayments were not alleviated by the company’s decision to offer its own loans to some investors, which over time amounted to $168 million. Nevertheless, periodical revaluing of its forest holdings enabled the company to swagger on, claiming it would reap massive rewards for investors.
The emperor has no clothes
By 2000 shares in Gunns had quadrupled in value. But the tide began to turn. The woodchip market was oversupplied, and in 2002 ANU academic Judith Ajani warned that because of currency changes and falling woodchjp prices “investments in plantations could collapse”.
Stung by criticism and obstruction from anti-logging protesters, Gunns decided to sue Bob Brown and 19 other vocal opponents of its practices for $7.8 million in damages. They failed. The defendants had to pay $150,000 in costs for the final stage of proceedings, but this, together with the costs of their own defence, was met largely by public support. In contrast, the company had to meet the costs of its large and very expensive legal team. Its public esteem also plummeted.
Undeterred, in 2004 the company decided to seek other markets for its timber, announcing its intention to construct the huge Tamar Valley pulp mill, at an estimated cost of $2.3 billion. Public opposition was instantaneous, ferocious and widespread.
Gunns subsequently bought softwood firm Auspine for $330 million, and other timber businesses. But time, luck and bravado had run out for the company. No investor was found for the pulp mill. Gunns had to cease logging old growth forests in 2010, and Gay was forced to resign. Since then the company has written off $1.3 billion in the value of its assets, and in March this year its shares were suspended from trading.
The Greens have described the decision to place Gunns in receivership as “the last nail in the coffin” for the pulp mill proposal. Nevertheless, the permit for the project is still valid, and Tasmanian Premier Lara Giddings still wants it to proceed, if a new buyer can be found for the company.
That’s possible but improbable. Any buyer who recommenced the scheme would face community hatred, both in Tasmania and throughout the nation. The Australian dollar’s high rating would not be a major hurdle for a foreign company that could use the pulp from the mill for its own industries. But even so, buyers would be unlikely to take on such a poisoned chalice.
In Australian timber yards you’re still likely to find beautiful hardwood timber from Gunns. The proposed pulp mill and the company’s clear felling of old growth forests were bitterly opposed on environmental grounds, but not the use of timber itself. Gunns could have remained focused on milling timber from its own plantations, without stripping the old growth forests. The firm would have been much smaller, but financially secure and with good prospects for its employees.
Tasmanian opposition leader Will Hodgman has accused the Greens and the environment campaigners of having deliberately brought about the company’s downfall. They certainly played a crucial role in halting the pulp mill project, but the company’s collapse was actually caused by the overwhelming greed, arrogance and stupidity of its owners.
With blind optimism fuelled by avarice the company overproduced, but woodchip prices slumped. The directors were incensed when people protested at Gunns’ rape of the landscape, but what did they expect? The company’s catastrophic behaviour mirrors the characteristics of the political-economic system in which it rose and fell. Gunns has become a metaphor for capitalism itself.
Next article – John Holland inflames situation
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