Hart - having cake, eating it too

Graeme Hart

One of New Zealand's oldest companies, Goodman Fielder, is set to rise again on the sharemarket as part of billionaire Graeme Hart's latest empire reshuffle.

The typically complex deal sees Hart selling 100 per cent-controlled New Zealand Dairy Foods (NZDF) to majority-controlled Burns Philp.

Burns Philp will then merge NZDF with its own baking, spreads and oils business to create a listed company called Goodman Fielder.

Burns Philp took over the original Goodman in 2003 and delisted it from the Australian stock exchange.

The new version will be dual listed on the New Zealand and Australian exchanges.

Analysts were yesterday estimating that the new company could have a value - excluding debt - of from $2.4 billion to $3 billion.

Hart, for his efforts, looks likely to "clip the ticket" twice on the deal and may still end up with ultimate control of all the companies involved.

His private company, Rank Group, will get a tidy capital return - perhaps more than $500 million - by divesting NZDF.

In August, Hart did a deal with Fonterra that involved a swap of dairy brands. He has already begun to restructure his new dairy assets, announcing plans to close a Meadow Fresh factory in Christchurch on Monday.

Analysts said yesterday that the NZDF money could help Hart pay down debt on his $3.3 billion acquisition of forestry company Carter Holt Harvey.

Hart will also benefit when Burns Philp pockets its share of the Goodman Fielder float. He has a 54 per cent stake in Burns Philp.

That cash is likely be used by Burns Philp to go hunting for acquisitions.

Burns Philp will retain the snack foods division of its business as well as holding on to a "significant" stake in Goodman Fielder. The company will not say how big a stake.

If it turns out to be a majority stake, then Hart will still have control of the entire conglomerate.

As Burns Philp chief executive Tom Degnan told the Herald yesterday: "We get the best of both worlds.

"It's as simple as this. We have created significant value at Goodman Fielder and the board felt it was time to realise some of that.

"At the same time, we can contribute to and participate in the future growth of the Goodman Fielder business by remaining on the board and retaining a substantial stake. We'll be able to take some of the capital out and we'll be using that in the next step when it happens."

Hart - whose worth is estimated at more than $2 billion - was already up on the deal by the close of trading yesterday. Burns Philp's share leapt 4.5c on the news to close at A$1.12 ($1.23).

Few financial details about the Goodman Fielder float were available yesterday. Burns Philp says Australian securities law prevents it "pre-selling" the deal.

In other words, they are not allowed to talk numbers prior to the publication of a prospectus.

Degnan said he was unable to comment on the potential value of the new company.

But the market won't have to wait long for details. In its statement to the stock exchange, Burns Philp says the IPO will take place in the "latter part of this year". The statement also said the initiative was driven by the Burns Philp board.

Charles Dalziell, of Sydney-based MMC Asset Management - Burns Philp's second-largest shareholder with about 45 million shares - estimated the baking, spreads and oils business of Burns Philp had a trading profit (ebitda) of close to A$300 million.

Added to that would be NZDF's trading profit.

Dalziell said he had heard estimates of that being about A$80 million "plus whatever synergies they can pull out".

That would give the new company an enterprise value of about A$3 billion based on earnings multiples of eight times trading profit.

Macquarie Equities investment director Arthur Lim said his company had made more conservative calculations, giving the new Goodman an enterprise value of $2.4 billion.

Enterprise value is a raw valuation that does not include debt.

He said the final equity value of the float would depend on how heavily leveraged the new company was and on the size of Burns Philps' final stake.

There were some uncertainties there but it looked like a clever way for Hart to free up money for Rank and Burns Philp.

"All in all, it's classic Hart isn't it?" Lim said.

- additional reporting Adam Bennet