Carter Holt Harvey faces another turn of fate

The Carter Holt Harvey Sawmill at Putaruru. Photo / Sarah Ivey

Carter Holt Harvey (CHH), once a giant on the New Zealand corporate scene, is devolving as its owner, Rank Group's Graeme Hart, seeks to focus his attention on his substantial United States and European assets.

CHH, whose origins date back to the mid to late 1800s, now comprises three core businesses - packaging, pulp and paper, and building supplies.

Hart bought the company, then one of the country's biggest, for $3.3 billion in 2006 and quickly sold its substantial forest estate for $1.6 billion. He has since sold property, worth about $300 million, and dairy farms, worth about $200 million. He sold CHH's Australian and NZ folding box business to Australian packaging company Colorpak in October.

Rank is now seeking to sell CHH's pulp, paper and packaging assets in Australia and New Zealand before a refinancing deadline in December, according to market sources.

A trade sale or an initial public offer is under consideration, but investment banking sources suggest a trade sale is the more likely path. Credit Suisse in Sydney is understood to be advising Rank and is running a bidding process for the business.

Although the company has downsized since Hart took control, it still employs about 10,500 people in Australasia across its businesses. CHH Pulp and Paper produces 900,000 tonnes a year of market pulp and linerboard, with about 60 per cent exported to Asia.

Once Hart had sold the forests, the remaining assets were expected to follow suit swiftly. In 2007 CHH's wood product and distribution arm was on the market for an estimated $2 billion but failed to find a buyer.

Speculation that CHH's Building Supplies Group - Woodproducts NZ, Woodproducts Australia and the Carters building supplies store chain - would again be put up for sale resurfaced early this year when about 80 managers were let go.

As far as assets sales go, Rank has buoyant market conditions running in its favour, and there is a high level of pent-up investor demand. Pulp prices are also running high at over US$1000 a tonne for the industry benchmark, NBSK kraft.

CHH and Rank have a name for keeping their plans under wraps, but one investment banking source said the pulp and paper, the packing and the building supplies group were being "dressed up" for sale.

He said both businesses were difficult sale prospects. The wood pulp industry is low-growth and highly competitive. On the building supplies side, Carters faces formidable competition from Fletcher Building's distribution chain, Placemakers, Australia's Bunnings, and the privately owned Mitre 10 chain.

But Hart is famous for taking big risks that pay off handsomely. He has made some gigantic plays over the years, including for Australia's Burns Philp and Goodman Fielder.

One source suggested CHH had become too small, and "not relevant enough" to what Rank was doing in the United States.

"[Hart] has not had a ton of fun with this, and I suppose one of the mistakes he made was hanging on to the remaining assets."

CHH's pulp and paper could in theory be refloated, but the option would probably not be one the market would favour given the poor track record of CHH and Fletcher Challenge on that score in the New Zealand pulp and paper industry.

"CHH, when it was listed, did not achieve anything like an economic return on its assets base, so what's changed?" Forsyth Barr analyst John Cairns said. "It was very much a conglomerate but I don't know what [Rank] have done with it because there is absolutely no profile on the business," he said.

Hart now runs a global packaging business through Reynolds Group Holdings in the US. In 2007, Rank bought the Swiss packaging giant SIG. The next year he bought the food packaging business of aluminium producer Alcoa.

Last year he paid US$6 billion ($7.58 billion) for America's Pactiv, maker of Hefty rubbish bags.

Hart, the former tow-truck driver who left school at 16, had his first big break when he bought the Government Printing Office for $23 million in 1990.

Known as a master of leveraged buy-outs, Hart typically buys poorly performing businesses and turns them around before selling them off.

The pulp and paper business is comprised of four mills in the North Island of New Zealand and two associated operational units, which work as a single integrated business.

The four mills are Kinleith, Tasman, Whakatane, and Penrose.

Kinleith is seen by the industry as being the jewel in CHH's crown, producing bleached and unbleached softwood kraft pulp and a range of linerboards and packaging materials.

The Tasman Mill, near Kawerau, makes a range of specialty pulp products used by makers of high-quality paper, tissue and building products. The Whakatane Mill makes coated cartonboards used in packaging.

Penrose is one of the country's largest producers of corrugated packaging. Widespread asset sales by CHH would mean the end of an era for the company, which has became a household name over the years.

Alex Harvey listed in 1948 and Carter Consolidated, an amalgam of seven family forestry and wood products businesses, was formed in 1951. In 1971, Carter and Holt merged to form Carter Holt Holdings, and together they went on to merge with Alex Harvey in 1985, thereby forming Carter Holt Harvey.

The company grew more acquisitive as time wore on, acquiring Caxton, a leading producer of tissue papers in New Zealand, in 1987. In 1989, CHH boldly expanded into Chile by acquiring a 50 per cent stake in Chilean conglomerate Compania de Petroleos de Chile (COpec).

In 1990 the company bought NZ Forest Products, thereby becoming the largest forestry products group in New Zealand. In 1999, CHH began to extricate itself from what had been a highly profitable association with COpec.

The acquisition of NZ Forest Products propelled CHH into a new league, boosting its revenues by more than 60 per cent to top $7 billion. By 1992, CHH found that it was carrying too much debt for its bankers' liking. The share price fell, leaving the company vulnerable to takeover.

Brierley Investments quickly stepped in and succeeded in acquiring a controlling stake in CHH by September 1991. At the end of that year, however, BIL had sold on part of its stake to International Paper of the United States, which later went on to 51 per cent ownership. In 2005, Rank started acquiring CHH and went on to take full control in 2006.