CHH pays $165m for Tenon's mills

John Dell

Carter Holt Harvey is buying Tenon's structural timber mills for $165 million to more than double its sawmilling capacity.

Tenon was on the brink of signing with someone else on Tuesday afternoon, but by 11.25am yesterday it had closed the deal with Carter Holt.

On settlement, Carter Holt will supply 40 per cent of the timber used to frame houses in New Zealand and make 85 per cent of the plywood.

"This is core business to us," said Carter Holt Harvey chief executive Peter Springford.

Carter Holt is buying the Kawerau sawmill, the largest in the country, the Rainbow Mountain sawmill near Rotorua, a plywood mill at Mt Maunganui and Tenon's Ramsey Roundwood business which supplies landscaping timber.

It already has sawmills at Kopu and Putaruru, and a plywood mill and roundwood plant in Tokoroa.

Tenon said about 650 staff were affected. Most would move to Carter Holt but some might be made redundant.

Carter Holt is promising $5 million of immediate gains from running the two businesses together and clearly expects more over time.

The biggest benefits are in cutting head office costs and support staff and in log procurement.

The price is 6.5 times earnings, but it reduces to 5.8 times after synergies are taken into account.

The purchase gives Carter Holt $25.5 million of earnings it would not have otherwise have had.

"It was a satisfactory deal for both parties," said Andrew Barclay, of JBWere Goldman Sachs, which advised Tenon on the sale.

Tenon said that after adjustments for working capital, the $170 million in cash received would be used to repay about $90 million of debt.

Chairman Tony Gibbs told the annual meeting in Auckland yesterday the rest would probably be kept to pay for the expansion of the appearance grade mills and distribution networks.

He said the price was significantly above the $123 million to $144 million valuation Grant Samuel had put on the structural business.

At a meeting notable for an improvement in mood over previous gatherings, Tenon shareholders approved a $321 million return of capital to them from the sale of the company's forests.

The chairman's address attracted only two questions and the re-election of directors was unchallenged.

The meeting approved automatic updates of the constitution when the stock exchange changed its rules.

But Gibbs said directors would "push the stop button" to the autopilot if they had a problem with rule changes.

Forestry companies have had tough times in export markets and good times in domestic markets.

The mills Carter Holt are buying sell three-quarters of their output at home and 16 per cent in Australia.

Springford said the purchase did not necessarily change the company's plan to built a huge new sawmill, but it could delay the project.

Forest owners in the centre of the North Island would prefer to sell to a diverse wood processing industry.

Kaingaroa Timberland chief executive Phil Langston said his company was comfortable with the Carter Holt purchase.

Forest owners also had an interest in having viable and competitive mills.

Kaingaroa is owned by Harvard University's endowment fund, and its interest is in owning the forest resource, rather than the industry it serves.

Tenon chief executive John Dell said the company had started the new financial year strongly.

The company was not changing its guidance of a $64 million operating profit in the year, but it was assuming a seasonal recovery in US pricing in the second half to get there.

Carter Holt's shares rose 3c to $2.05 yesterday. Tenon's rose 4c to $2.20.