Hart pays up and remakes board

International Paper chief John Faraci says parting with CHH is a good - and profitable - business decision. Picture / Martin Sykes

Billionaire Graeme Hart yesterday began to stamp his mark on Carter Holt Harvey, appointing himself and four others to board seats vacated by the forest products group's former cornerstone shareholder, International Paper.

The appointments came as Hart's private investment company, Rank Group, handed over the $1.7 billion it had agreed to pay for International Paper's 50.5 per cent stake, ending a 13-year investment in the company and a decade as majority shareholder. The new faces, apart from Hart, are: Mark Burrows, a director of Hart's listed Australian food business, Burns Philp, and investment bank Lazard; Burns Philp director and managing director Thomas Degnan; Bryce Murray, also a director of Burns Philp as well as a senior executive of Rank; and Tim Hardman, Rank's operations head.

They replace Brian McDonald, Andrew Lessin, Maximo Pacheco, Bob Grillet and former Carter Holt finance chief Jonathan Mason, all with International Paper roles.

John Maasland remains in the chair. He and fellow directors Helen Nugent and Terry McDonald will oversee Hart's $2.50 a share, $3.3 billion offer for the entire company.

These directors have already recommended minority shareholders not accept the offer because it falls short of the $2.55 to $2.95 valuation arrived at by independent appraiser Grant Samuel.

Carter Holt's shares yesterday closed down one at $2.50.

The handover took place yesterday at a Carter Holt board meeting attended by John Faraci, who was chief executive at Carter Holt in the late 1990s and is now chief executive and chairman of International Paper.

Of the sale, he said: "It was a tough, emotional decision, but it was the right business decision. International Paper's strategy has changed since we invested."

The US company, which first invested in Carter Holt in 1992 before topping up its investment to its majority stake in 1995 when the shares were trading at around $4.58, wants to go it alone in Asia Pacific.

Faraci said International Paper had made a profit on the investment, but did not disclose the figure. He said the strength of the New Zealand dollar, now trading near post-float highs, had played an important role in the decision to sell.

"Currency was a factor. When the New Zealand dollar was at 40USc, obviously that was a cause for worry. It made Carter Holt more competitive in export markets, but it had the opposite effect when we were looking at our investments.

"IP got a positive return on investment, but not one that would meet our [expected] return on investment, particularly because of what happened to log prices.

"Log prices declined in the 1990s and never recovered and that made it very difficult to get the returns we would be satisfied with and Carter Holt Harvey would be satisfied with."

He would not speculate on the future of Carter Holt Harvey under Hart, who is known for taking a knife to corporate costs and is expected to sell off at least parts of the business.

Company overheads have long been a bone of contention between management and investors. Carter Holt's latest annual report shows more than 800 of its employees earned over $100,000 last year.

"Carter Holt has a lot of good businesses here in this part of the world," Faraci said. He highlighted Carter Holt's panels, packaging and the wood products business, particularly after the recent acquisition of rival Tenon's structural timber operations.

But the pulp and paper business faced difficulties. Rising energy costs and restrictive labour laws were a disincentive to investment here. At the current greenback-kiwi exchange rate, he said it did not make sense to invest any more money in the pulp and paper plants.

Would Carter Holt be around in 20 years?

"I think Carter Holt will be here, it has been around for a long time. This part of the world will continue to have a forest products industry. But it is one that will have to change and recognise that the industry is challenging."

Taking Hart

Billionaire Graeme Hart has offered $2.50 for each Carter Holt Harvey share.

50.5 per cent shareholder US forest products giant International Paper sold its stake yesterday and vacated its board seats.

The offer to all other investors opened on September 14 and is scheduled to close on October 13.