Hart's phone call came 'out of the blue'

CHH chief executive Peter Springford says he is "first at risk" from post-acquisition job cuts. File Picture / Fotopress

The two-minute phone call from New Zealand billionaire Graeme Hart to inform Peter Springford that Carter Holt Harvey was on his shopping list "came from out of the blue".

The CHH chief executive had not dealt with Hart before.

"But it's good to have a New Zealander getting into a New Zealand company for a change," said Springford. "He's got a pretty good track record and that's important.

"He's willing to take risks and add value."

Hart's investment company, Rank Group, struck a $1.65 billion deal with United States forest products company International Paper on Wednesday, to buy 50.5 per cent of Carter Holt at $2.50 a share. Under takeover rules, Rank now has to make a full $3.3 billion takeover bid at the same price.

Unions have stirred fears that Hart will axe jobs and close poorly performing operations in a break-up of the forest products conglomerate.

But Carter Holt Harvey chairman John Maasland - who had a two-hour session with Hart yesterday - later emphasised it was "by no means a done deal" that the company would be broken up.

The CHH management team is in "business as usual" mode. But it faces operational constraints until Rank's takeover is finalised and Hart gets into the driving seat.

CHH independent directors committee chairman Kerry McDonald said it was a time of "change and uncertainty".

Springford has not had discussions with Hart over whether his own job is secure.

"As a CEO, you're always the first at risk. But we'll have to wait and see."

While it could theoretically take Hart until the end of October to finalise his play, Springford expects it will be wrapped up in "four to six weeks".

Bankers said Hart would not need to sell other assets to raise money for his latest foray, unless remaining CHH shareholders sold at $2.50.

That is seen as unlikely, with the share price still above the bid as investors ride Hart's coat-tails. It closed down 1c at $2.55 yesterday.

"If he gets the rest of Carter Holt, he may sell bits and pieces - potentially parts of Dairy Brands," said one banker. "Burns Philp is completely cashed up so that could return capital."

But speculation has emerged that Hart plans to issue a CHH junk bond in the New Zealand market. One source said the market was being sounded out by Hart's bankers about an issue raising up to $300 million, which could come before Christmas.

Others dismissed the talk as speculation - but said there could be an appetite for such an issue.

"A number of things argue for them to do a junk bond here," said one debt specialist.

Major banks might have less appetite to fund CHH than before because Hart usually increased debt at companies he owned, so putting a level of subordinate funding in place would appeal to them. At the same time, a shortage of corporate bonds amid growing wariness about fixed interest securities issued by finance companies would ensure plenty of retail interest.

Although the big deal has been done, investment bankers are still circling CHH in the hopes of more fees.

Jonathan Cimino, director of investment bank Cimino Partners, said Hart's ability to deal with CHH's assets might be restricted if he did not win full ownership, but there was a "probability" some businesses would be put up for sale.

"Carter Holt was clearly the mega deal and maybe some of the investment banks will be disappointed Graeme [Hart] has scooped it ... but the match might burn twice."

Forsyth Barr managing director Neil Paviour-Smith agreed.

"Investment bankers are always going to be pursuing ideas. It's natural for this to generate activity."

Paviour-Smith said some believed Hart would break up and sell CHH, others that he would look for better returns than the business had delivered in the past.

One investment banker said Hart tended to buy assets and squeeze the juice from them.

"But there will be queues of people going through his door - Fletcher Building may want certain building material assets, there'll be people who want retail and people who want forests."

One senior retail executive said CHH's 40-site building supplies chain, Carters, could create interest.

"I'm sure every one of us in the industry has, at some time or another, said there's scope for consolidation," he said.

Analysts have suggested the sale of CHH's forests will probably go ahead under Hart as part of a trend worldwide for such assets to be sold to groups specialising in long-term forest ownership.