Pactiv deal biggest gamble yet for elusive Hart

Graeme Hart's $6 billion buyout of trash bag firm Pactiv, his biggest deal yet, follows his pattern of buying up companies, repackaging them and selling them on. Photo / Dean Purcell

Graeme Hart went from high-school dropout to become richer than anyone in Australia or New Zealand by buying and repackaging under-performing businesses. Now he's doing it to the packaging industry.

This week's $6.3 billion agreement to buy Pactiv Corp and combine the maker of Hefty trash bags with his Reynolds Group Holdings is his biggest gamble to date in a career that has taken him from tow-truck driver to the world's second-largest maker of drink cartons, trailing only Sweden's Tetra Laval.

"He's a one-man private equity show," said Brian Gaynor, who helps manage $600 million at Milford Asset Management in Auckland.

"He's not a builder of businesses from scratch. He buys businesses that have gone stale and run out of ideas, puts them together and on-sells them."

Acquiring Pactiv is the most expensive deal yet for 55-year-old Hart, who built his fortune buying grocery, dairy and retail assets through his closely held Rank Group.

Since quitting most of his food businesses in 2006, making at least $2.8 billion in the process, he has embarked on a $14 billion buying spree in packaging on three continents.

"Size does matter for packaging companies," said Joe Leong, a Melbourne food and packaging analyst at BIS Shrapnel.

"Customers require more flexibility from packaging companies so you need to have the scale for new products like he is doing."

Hart's fortune has given him a hilltop home in Glendowie overlooking the harbour and a $140 million motor yacht, Ulysses. His early career had humbler origins.

As a teenager, he dropped out of Mount Roskill Grammar, which counts Oscar-winner Russell Crowe among former students, to work. He later returned to study, earning an MBA at the University of Otago.

At 22, he teamed with Iain MacGibbon to buy Rank, then a publicly traded party hire company.

In 1990, Rank bought New Zealand's government printing business for $23 million.

Rank later bought bookseller and stationer Whitcoulls from Brierley Investments for $71 million, selling it five years later to US Office Products Company's Blue Star Group unit for $320 million.

Since buying out minority investors in Rank in 1996, Hart has kept a low media profile not holding any press conferences and doing limited interviews, according to Herald columnist Gaynor.

"He's a very private person and doesn't really talk to anybody and he doesn't hang around with the business scene," said Gaynor, whose son attends the same Auckland school as Hart's children. "I've never seen him at school events."

Hart's wealth was estimated at $5.5 billion last month when he topped National Business Review's annual Rich List, a position he has held in eight of the past nine years.

Forbes magazine put his fortune at $5.3 billion in March, ranking him 144th in the world, one place behind fashion designer Giorgio Armani and ahead of everyone in Australia, with more than five times New Zealand's population.

Calls to Rank's Auckland offices seeking an interview with Hart were not returned.

Hart nearly lost his fortune in 1997 through Burns Philp, a Sydney-based maker of yeast and spices.

Four months after spending A$265 million ($334 million) acquiring almost 20 per cent, the value of his stake fell to just $35 million as Burns Philp failed to sell its spice assets, prompting a A$700 million writedown that pushed the company to the brink of bankruptcy.

With the company in the control of banks after breaching covenant arrangements, Hart persuaded a 20-member syndicate of lenders to agree to a standstill on more than A$1.3 billion of loans.

"We are going to give it our absolute best shot," Hart said after the company's AGM in 1997.

He later agreed to invest A$100 million as part of a recapitalisation that gave him majority ownership.

With debt and costs cut at Burns Philp, Hart resumed acquisitions in 2003 with a A$2.25 billion bid for Goodman Fielder, Australia's largest baker, a purchase he said was "all about intelligent use of debt".

Within four years he had raised more than A$5 billion selling out of food, including an initial public offering of a reshaped Goodman Fielder.

Between 2004 and 2006 he raised A$2.1 billion selling 80 per cent of Goodman Fielder in the December 2005 IPO, A$1.35 billion from selling its spice assets to Associated British Foods and A$890 million selling Uncle Toby's cereals to Nestle.

Hart switched to packaging in 2006 with the March purchase of New Zealand's biggest lumber company, Carter Holt Harvey, for $3.3 billion. To help fund the deal, he sold his remaining 20 per cent holding in Goodman Fielder for A$562 million.

The Carter Holt bid included big forestry holdings, which Hart soldas plantations or redeveloped as farms.

Later that year he paid $3.5 billion for International Paper's beverage-packaging unit and SIG Holding.

Both this week's deal for Lake Forest, Illinois-based Pactiv and the SIG purchase involved Hart trumping offers from buyout firms.

The Pactiv deal includes $2.1 billion in debt, requiring $7 billion in loans according to a regulatory filing.

Reynolds' debt rating was this week put on review for a possible downgrade by Moody's Investors Services, which cited concern about the size of the deal and its reliance on debt financing.

- BLOOMBERG