The Business Herald’s markets and banking reporter.

Hart's New Zealand exit strategy

Country’s richest man could sell remaining stake when Carter Holt Harvey floats this year.
Graeme Hart is estimated to be worth $9.1 billion. Photo / Bloomberg
Graeme Hart is estimated to be worth $9.1 billion. Photo / Bloomberg

Could this be Graeme Hart's last stand in New Zealand?

The country's richest man, estimated to be worth US$7 billion ($9.1 billion) by Forbes, is gearing up for a transtasman sharemarket float of Carter Holt Harvey, tipped by market sources to be scheduled for June or July, which could value the business at up to $1 billion.

The Auckland-based building supplies firm, acquired by Hart in 2006 for $3.3 billion and promptly de-listed from NZX and ASX, is the last remaining Australasian operation in his Rank Group empire.

There's been no official confirmation of the initial public offering (IPO), and Rank declined to comment, but market chatter suggests a decision is yet to be made on whether Hart will retain a stake following the float.

Rank's main focus these days is the Northern Hemisphere, more specifically the United States, where most of its packaging, consumer and automotive products businesses are located.

The Carter Holt IPO could complete Hart's commercial exit from this part of the world, a process that has included Rank selling its remaining 20 per cent holding in Australasian food giant Goodman Fielder (which Hart floated in 2005) in 2007 and the various parts of Carter Holt that have been offloaded since the acquisition.

The float, if successful, would be a rare case of stock market rebirth and much of the marketing push will be aimed at convincing investors that the Carter Holt of today is a very different business to the publicly listed firm of a decade ago.

Leading the charge are investment banks Credit Suisse and First NZ Capital, with Deutsche Craigs and Forsyth Barr also understood to have joined the action as joint lead managers.

Before Hart's takeover, Carter Holt was the fourth-largest stock on the local sharemarket in terms of market capitalisation. It had forestry assets, plants and retail operations dotted across Australasia, a couple of factories in China, more than 10,000 staff and total revenue of over $3 billion in 2005.

But the company was a serial underperformer during its final years on the sharemarket.

The company's final full-year result as a listed company included a 77 per cent plunge in net profit to $130 million, which was blamed on challenging trading conditions including difficulties in export markets, rising freight costs and a strong New Zealand dollar.

That result probably helped convince many investors, including Carter Holt's large base of retail shareholders, to accept Rank's takeover offer.

Carter Holt has been significantly slimmed down under Hart's ownership and sources say part of the sell behind the IPO is that it's a much simpler business than its larger, listed competitor, Fletcher Building.

Divestments since 2006 include Carter Holt's substantial forestry estate, sold to US-based Hancock Timber Resource Group for $1.6 billion. Dairy farms and other property have also been sold off for about $500 million, while the pulp, paper and packaging businesses were sold to Japan's Oji Holdings and Innovation Network for about $1 billion last year.

Today, the firm is understood to have fewer than 5000 staff. It operates Woodproducts NZ and Woodproducts Australia, plus 50 Carters building supplies outlets in this country.

A number of Carter Holt's sawmills have been shut down under Rank's ownership and the company now operates four New Zealand milling sites - in Tokoroa, Nelson, Kawerau and Whangarei - as well as nine frame and truss plants. There are nine mills in operation across the Tasman. Woodproducts, whose brands include Pinex and Laserframe, is understood to have about 50 per cent of NZ's structural timber market and about 30 per cent of Australia's.

Given the company doesn't publish financial figures, it's unclear what kind of earnings it generates but the firm's total revenue is thought to be in the region of $2 billion. In a market in which yield is very much in vogue, it's understood reasonable dividends are going to be dangled in front of prospective investors.

Graeme Hart, here with his wife Robyn, is not expected to help with the PR push. Photo / Gunnar Wiik
Graeme Hart, here with his wife Robyn, is not expected to help with the PR push. Photo / Gunnar Wiik

So will Hart be making an appearance in the public relations campaign to promote the deal? That's highly unlikely, given his penchant for staying well away from the limelight. His last high-profile public appearance was in Norway last year, at the launch of his $107 million superyacht.

But we can expect to hear from chief executive Prafull Kesha, who is understood to be a 20-year veteran of the company who worked his way up through tax, finance and operational roles.

Carter Holt is generating a fair amount of market interest given it is likely to be the biggest sharemarket float this year. Several local fund managers have signed confidentiality agreements around the deal, suggesting they are already engaging with bankers on the IPO.

Richard Stubbs, of Auckland-based fund manager Castle Point, says investors will pay close attention to whether Carter Holt has suffered from under-investment during its years under Hart's ownership.

"An easy way to make money when you de-list a company is to strip it of its assets and under-invest," he said. "With any company that has been de-listed by an astute investor like Graeme Hart, or a private equity company, you need to make those considerations."

The float's promoters will also have to dispel a perception in some quarters of the market that the IPO is a kind of "Plan B" following unsuccessful attempts by Rank to sell the Woodproducts business privately. In 2007 media reports, citing market sources, said Hart was seeking bids for Woodproducts in a sale process being managed by First NZ and Credit Suisse that was aiming to fetch more than $2 billion.

Speculation that the business was to be put up for sale resurfaced in 2011 when about 80 managers were let go.

Stubbs says Castle Point will investigate the offer.

Harbour Asset Management managing director Andrew Bascand says his firm will also take a look at it.

"We have seen so many floats from private equity companies," he said. "We're pretty tuned and alert to making sure they are good quality companies."

The Carter Holt IPO is just one part of a wider international sale push being carried out by Hart.

Last month Reynolds Group - the packaging and consumer products division of Rank - wrapped up a 3.6 billion ($5 billion) sale of its European packaging business, Switzerland's Sig Com bibloc, to Toronto-based private equity firm Onex Corporation. Reuters reported last year that the successful sale of Sig would help Hart reduce a US$18 billion debt pile accumulated through several leveraged buyouts.

The Financial Times reported in September that Rank had hired investment banks to sell Reynolds' US-based packaging firms Evergreen and Closure Systems International.

- NZ Herald

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