Giants' joint venture unlikely to pass test

By PAULA OLIVER forestry writer

A joint venture between Carter Holt Harvey and Fletcher Forests to buy the country's largest forest estate would struggle to pass market dominance hurdles unless it gained GlobalCo-type treatment.

Talk of a joint venture between the two timber giants gained pace last week, with market speculation suggesting they were discussing a bid for the Central North Island Forestry Partnership.

But a full Commerce Commission decision suggests the combined entity would have enormous difficulty gaining clearance.

The decision clears Carter Holt alone to buy the partnership's assets, but requires the company to divest assets to avoid market dominance in pruned logs. It also shows that independent purchasers would be reliant on the entity for unpruned logs until 2003.

Crucially, Fletcher Forests is held up as a significant competitor in several markets - suggesting the two together would breach market share limits.

A vigorous opponent of Carter Holt's application, the Timber Industry Federation, said yesterday that it found the prospect of the two forestry giants teaming up to be unacceptable.

Executive director Wayne Coffey said that a Carter Holt purchase alone was right on the commission's safe harbour margins.

A timber analyst said a combined bid would not get off the ground unless there was a "polar shift in the way the Commerce Commission thought."

"It would need to be the GlobalCo sort of thing - for the greater good," he said.

"There would need to be very strict protective mechanisms in place for small sawmillers and contractors. But the reality is that industry groups will fight it tooth and nail."

He said the two timber giants had definitely held discussions.

Carter Holt chief executive Chris Liddell is unrepentant in saying that clearance was sought only to keep the company's options open - it had no plans right now to buy the assets.

Fletcher Forests says it is in discussions with several parties with a view to a potential partnership.

But it is refusing to say who they are.

Another market observer said that if Carter Holt and Fletcher Forests brought in another partner and formed a three-way joint venture they might get closer to clearance because their influence would be diluted.

Consolidated ownership is seen as a way of reducing the volatility in the forestry industry.

Carter Holt has been consistently pushing for consolidation in the past two years, even floating the idea of a joint marketing company to export New Zealand's wood.

That idea met a heated response from smaller industry players, who suggested any such joint effort would need to include them on an equal footing.

As much as 65 per cent of the increase in New Zealand's harvest levels in the next 10 years will come from non-corporate forest owners.