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2005 Review: Top three NZ deals for 2005 all involved Graeme Hart

By Simon Louisson of NZPA

Thursday 29th December 2005

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In terms of deals of the year, New Zealand's richest man, Graeme Hart, took out the gold, silver and bronze medals.

Arguably, Meridian might have medalled with its $1.5 billion sale of Southern Hydro in Australia, netting its 370 staff a 10% bonus, but a strong case could be made for Hart's trifecta.

Certainly, a competition for entrepreneur of 2005 is simply a question of who are the contenders for runner up.

The low profile 49 year-old billionaire kicked off his extraordinary year in August when he got Fonterra to shell out $754 million for part of New Zealand Dairy Foods (NZDF).

Three years earlier, his Rank Group bought the company for just $310m - half from Fonterra, which had been virtually forced into the sale to get the mega company launched.

Hart cashed in on Fonterra's desire to be a market leader in key products on its home turf.

Fonterra bought the Anchor milk and Fresh'n'Fruity yoghurt brands and sold to NZDF the Meadow Fresh and Tararua dairy brands and Kiwi smallgoods businesses for $416 million.

This deal was in part precipitated by Fonterra's failure in the $2 billion takeover battle with San Miguel over Australia's National Foods.

Soon after that battle concluded, where Fonterra lost but walked away with a $250m profit, Hart signalled NZDF was on the block.

Most commentators expected him to flick it to the Philippine company, which had declared an interest, or to his 54%-owned food company Burns Philp of Australia.

The following month the strategy became clearer. Instead of selling to Burns Philp, he split the latter up, spinning off a new company with an old name, Goodman Fielder, into which he flicked NZDF.

Goodman Fielder, one of the biggest names in Australasian corporate history, has been floated for around $2.1 billion. Burns Philp will retain around 20% interest.

The price paid for NZDF is not clearly disclosed in the prospectus, but corporate valuer Grant Samuel estimated it at $800-900m - a whopping value considering Hart pocketed a net $328m from selling Fonterra the eyes in the brand swap.

In addition to NZDF, the new Goodman contains the bread and oil brands previously owned by Burns Philp, which is left with the cereals and snack divisions.

Burns Philp bought Goodman Fielder in 2003 for nearly $A2 billion ($NZ2.2 billion) in a deal that seriously stretched its balance sheet. The company had for years been an under performer despite, or because of, continuous restructuring.

Burns Phlip restored its balance sheet by selling its international yeast and spices businesses for $US1.35 billion ($NZ2.13 billion).

Hart nearly managed to sell Goodman Fielder Mark II in a trade sale but that fell through at the 11th hour and the float proceeded.

Sandwiched between the Goodman and Fonterra transactions was the biggest deal of all - Carter Holt Harvey.

The latter's former major shareholder International Paper announced it wanted to quit, and Hart got the jump on rivals by flying to the HQ at Stamford, Connecticut and nutting out a clean, airtight deal.

The Hart name was mentioned in pre-sale speculation.

He paid $1.65 billion for IP's 50.5% and that triggered a full takeover at $2.50 per share, requiring Hart to have $3.3 billion at the ready.

To date, he has secured around 85% and looks like winning total control by the first quarter.

What Hart is up to is unclear. Previously he has said he wants to establish a global scale food business. Formerly, the nearest to forest products he got was printing.

He is known for risk taking and this gamble is simply one notch further up the scale.

Carter Holt has been a chronic under performer even under control of what should be its best owner - the world's biggest forest products company.

Typically, Hart has said not one word about his plans. Analysts immediately jumped to the conclusion he will break the company up, assessing the company to be worth $2.50-$3.00/share when split up.

Certainly, the speed with which he has been dispensing with senior staff suggests asset stripping is the game.

Initially, Carter Holt shares jumped above the $2.50 offer price as investors bet a ride with Hart will be worth it.

The independent directors advised investors to reject the bid. But investors have cooled as the sharemarket has fallen, the dollar stayed high and Carter Holt dished up a dismal third quarter result.

It remains to be seen if Hart can pull off another coup.

His track record is impressive since leaving school to start a freight business with one truck.

At 20, he bought a run-down printing works and then, after completing an MBA at Otago in 1986, took over four Auckland party hire firms.

He raised $6 million in a float of his business just before the 1987 sharemarket crash, and cannily cashed up.

He entered the big-time in 1990, when Rank bought the Government Printing Office for $23m - half its asset value.

Within a year, Rank bought the Whitcoulls books and stationery chain from Brierley Investments for $75m and by 1993 had spent another $122m buying other chains to turn it into the major Australasian player.

In 1996, after an abortive $501m bid on supermarket chain Foodland Associated Hart sold Whitcoulls to entrepreneur Eric Watson.

He was 41 when he began buying the Pacific island trader Burns Philp. He spent $A260m in 1997 on a 19.9% stake at $A2.45 a share, only to see the shares collapse to just 3.4c each a year later when losses in the spice business were exposed.

Many Australian commentators revelled in his imminent demise, but it proved premature. The next five years revealed his tenacity.

At the height of the crisis, the company capitalisation fell to $A150m and owed $1.6 billion.

Hart restructured and refinanced, hugely increasing his equity, and in 2001/02 the company booked a $A98m profit before one-offs.

By 2002, Rank was able to buy NZDF and the following year Burns Philp has a strong enough balance sheet to swallow a bigger fish than itself - Goodman Fielder for $A2 billion.

Macquarie equities investment director Arthur Lim said Mr Hart has survived his gambles because of the analysis he does.

Another analyst, Paul McCarthy of Wilson HTM said: "He likes to create wealth, move on, find the next opportunity, make a dollar and move on again".

Lim believed Hart had been a hugely positive influence in 2005.

"It's great that we have a real live New Zealand entrepreneur with a track record of creating value as opposed to the nonsensical entrepreneurs we have had in the past who have used sleight-of-hand to create value for themselves but nothing for anyone else."

Whether, there is a "dollar" left for those who invest in Goodman Fielder will be interesting and, even more so, will be whether Hart can make money out of Carter Holt where so many others have failed.

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