CHH surges as rumours fly

By ELLEN READ markets writer

The surge in Carter Holt Harvey's share price has spawned an abundance of rumours about the company's future.

Carter shares closed at $1.90 yesterday, sharply higher than the year's low of $1.54 in January, with brokers reporting heavy buying by one or two players.

Analysts are keen to downplay the rumours, attributing the gains to, among other things, improved prospects for the pulp and paper sector and an inevitable rise from its low price base.

Nevertheless, stories ranging from Carter's majority shareholder, International Paper, being poised to sell out completely and Carter Holt management having secured a party to buy out International Paper are also doing the rounds.

A spokesman for Carter Holt said it was company policy not to comment on the share price or market rumours.

While no special emphasis was placed on any particular rumour, brokers believe it is a case of where there's smoke there's fire.

"New Zealand shares don't run like this without something going on," one said.

International Paper had had all the time in the world to take full ownership of Carter Holt if it wanted to, leading people to believe the US company was a seller rather than a buyer of Carter Holt, said another senior broker.

International Paper's stated intention was to concentrate on the North American and European markets. It had also been steadily decreasing its management of Carter Holt, he added.

"So the story goes that one of the reasons that Carter Holt has been so weak for the past six months when it shouldn't have been - given that the pulp and paper sector has been very strong, the balance sheet is strong and the New Zealand economy is picking up - is that International Paper was looking for a buyer."

Another broker said he had heard that International Paper had appointed an investment bank to seek buyers.

US forestry giant Weyerhauser was a possibility, but it was tied up in a big American deal and unlikely to act soon, he said.

The other popular rumour is that Carter Holt's management has found a partner and is negotiating with it to take full control of the company.

"How much credence do I put on it?" said a broker. "In the New Zealand market there's never been smoke without fire and the share price is simply too strong, too one way, and the buying has been too relentless for something not to happen."

Analysts are more circumspect, preferring to attribute the price gains to global conditions. Credit Suisse First Boston analyst Andrew Mortimer said the stock was cheap anyway and pointed to strength in International Paper's share price reflecting a view on longer-term demand and a softer landing in the US improving overall paper and forest products consumption and demand.

Most of those attending Credit Suisse's global forests and paper conference in New York last week, including International Paper and Weyerhauser, forecast an improvement in conditions in the second half of this calendar year, Mr Mortimer said.

Frances Loo, an analyst with UBS Warburg, attributed the Carter Holt gains to the release of cash from the Fletcher Energy deal and recent interest rate movements prompting an expectation that economic recovery may not be too far away.

Given that International Paper is reducing leverage and working on consolidation, it would make little sense for it to buy more of Carter Holt, she said.

On the flip side, it was not a good time to be a seller either, she added, given the now-higher share price, the stronger New Zealand dollar and the presence of other assets on the market.

Ms Loo said New Zealand was not a huge capital market, so one or two orders could push prices around significantly.