Time for CHH to box clever in market

Carter Holt Harvey could secure a bigger slice of the Australian A$2 billion cardboard box market in the aftermath of allegations that its main rivals ran a box cartel.

The Australian Competition and Consumer Commission sued privately owned Visy Industries on Wednesday for colluding to fix prices and split customers with Amcor between 2000 and 2004, but gave Amcor immunity from prosecution because it had blown the whistle on the alleged cartel.

The fallout from the ACCC suit could see Visy and Amcor, which control 53 per cent and 39 per cent of the market respectively, facing disenchantment from customers looking to secure alternate suppliers.

Under those conditions, CHH's 5 per cent stake of the Australian box market could grow to 25 per cent, said Stephen Hudson, an analyst with Macquarie Equities.

Were CHH to sell about 200,000 tonnes of cardboard in Australia, it could reap an extra A$60 million ($65 million) a year in earnings before tax and interest.

"The potential profit enhancement comes from shifting [CHH's] fairly unprofitable Asian export linerboard or cardboard sales into the more profitable Australian box market," said Hudson.

While CHH does not break out its financials for the Australian box division, Hudson estimates the company earns a "fairly negligible" profit from the unit now.

The company had forecast ebit of $141 million for the 2006 financial year.

CHH tried to take a bigger stake of the market one year ago when it paid $85 million for Wadepack, a Queensland cardboard-maker.

CHH spokeswoman Jillian Talbot said the company would not comment on the ACCC suit.

Other industry observers said CHH might benefit from the publicity surrounding the case to boost its market share.

"I think we're heading for another box war, which just means strong competition, initially in New Zealand, and it will certainly flow through to Australia because all three companies operate on both sides of the Tasman," said Robert Eastment, director of paper and packaging industry consultants IndustryEdge.

Perennial Growth Management partner Ken West said: "I think there would be some sympathy across to Carter Holt, provided they have the ability to supply."

Any good news for CHH is also good news for majority shareholder Graeme Hart. He controls 85.1 per cent of CHH shares, taking him nearly to the 90 per cent threshold where he could compulsorily acquire the outstanding shares.

His $2.50-a-share bid closes today, but he is likely to extend it again.

Amcor and Visy's customers, including top drinks companies Foster's, Lion Nathan and Coca-Cola Amatil and food groups such as Cadbury Schweppes and Nestle, plan to watch the cartel case carefully.

A former chief executive of the competition commission, Hank Spier, is leading a group of large and small customers who buy boxes who will be seeking damages from Visy and Amcor if the commission's case is successful.