Opinion: Downstream forestry sector getting Hart surgery

By NZPA

Friday 16th March 2007

Graeme Hart is applying the business beliefs that took him from tow truck driver, to billionaire, to the downstream part of the forestry industry where the biggest names of New Zealand business stumbled.

This time there are no former All Blacks or executives with post graduate degrees from the best universities in the world in the management team.

And there is no army of public relations people trotting out the latest business theory to distract from the fact that the business has disappointed because it couldn't influence the global markets it operated in.

There's no need to spin because the business is now being run in private and no one will get upset if a loss occurs in one year to make changes that deliver long-term.

Carter Holt Harvey reported a small June half year loss in the first set of accounts since Hart bought it last year.

The "battalion of executives earning $100,000 or more" lambasted by dissident shareholder Max Gunn at a Carter Holt annual meeting have been sawn down.

Carter Holt's latest profit result, once a major event for analysts and journalists alike, was quietly sent to the companies office and got reported a couple months later when someone noticed it.

Hart bought Carter Holt for $3.3 billion and since then has bought a global beverage packaging business from International Paper for $725 million and is well on the way to taking over SIG, a Swiss packaging business, for another $3.3b.

These are private transactions by a low-profile businessman who has a MBA from Otago University in Dunedin. Hart's MBA project was apparently a blueprint for Rank Group, the wholly owned company he uses as an investment vehicle. NZPA asked for a copy but the MBA school said no.

Hart is not talking about his latest acquisitions, which is a consistent position and understandable because he doesn't have to.

But people can see similarities with what Hart is doing now with what he has done in the past.

He has been good at buying underperforming businesses, fixing them up and then selling to the natural buyer several years later.

He bought dairy assets when dairy co-operative Fonterra was created and later sold them to Fonterra. And did a similar thing with Australian company Burns Philp, particularly with the yeast assets.

When a business he has fixed up hasn't had a natural buyer, like Australian food company Goodman Fielder, he has sold it to the public in a sharemarket float.

Most analysts can't see a major fit between the packaging businesses Hart got as part of Carter Holt and the global packaging assets he has bought since.

But there are similarities with the past. Carter Holt itself was an opportunity because its 50.5% owner International Paper (IP) was selling as part of a massive restructuring to concentrate on a smaller number of business segments.

SIG was looking around for a buyer because rival Elopak was trying to buy it cheap.

SIG is exactly the kind of business Hart likes. The global beverage and dairy carton market had just four players before Hart entered it.

IP's beverage division had annual revenues of around 800m euros ($NZ1.6b), Elopak 600m euros, SIG 1b euros and the grand daddy, Tetra Pak, 7b euros.

Hart has bought the IP beverage business and is well on the way to owning SIG with Norweigan-owned Elopak scared off by an increased bid by Rank.

He is building a No 2 position in a global market. Down the track Tetra Pak would be a natural buyer.

Back home, speculation continues that he will buy Australian packaging business Amcor. Its paper-based packaging businesses would be a nice fit with Carter Holt's -- Carter Holt always wanted them but they weren't for sale -- and the plastic packaging businesses would fit with the global packaging business he is putting together.

Hart is known for liking No 1 or No 2 positions in markets and he's happy to be a No 2 to someone like Fonterra or Tetra Pak.

He has divided Carter Holt into a "family of six businesses" -- New Zealand wood processing, Australian wood processing, the Carters building supply chain, pulp and paper, carton packaging and corrugated packing.

No one expects Carter Holt to be kept together in its current form. Each segment is likely to be built to have a large market position and sold to a natural buyer or in a sharemarket float.

Fletcher Building is seen as a natural buyer of either the New Zealand wood processing business or the Carters chain.

The New Zealand wood processing business already enjoys a big market position in the supply of structural timber -- some think too big.

Hart has bought out the emerging big structural timber miller TDC in Whangarei and his big competition in the central North Island is the old Waipa mill owned by Phil Verry.

In the building supplies business, Hart has been buying up ITM stores. Carters' main competitor is the Placemakers chain owned by Fletcher Building.

Analysts always thought the Carters chain had potential but it got lost as a relatively small part of the large Carter Holt conglomerate.

Any successes Carter Holt had, and there were some, got lost in the overall story that was dominated by the poor performance of its forests, and the hit commodity export businesses took from the high New Zealand dollar.

Chairman Sir Wilson Whineray, a former All Black captain, expressed his frustration at global events outside his control during his 35 years with Carter Holt at the last shareholder meeting he chaired, which was a drama-filled blockbuster by any standard.

Hart has already sold the forests. With that sale the vertically integrated forestry conglomerate model died in New Zealand.

Fletcher Challenge, the ultimate blue chip corporate, whose former executives included All Blacks David Kirk and former coach John Hart, has already been broken up.

Carter Holt's Australian wood products division could eventually go to a number of natural buyers in Australia.

The pulp and paper business will be the interesting one.

Koch Industries -- an operator of large industrial "smoke stack" businesses, and in the news recently because of the death of celebrity Anna Nicole Smith, who in 1994 married its 89-year-old major shareholder, oil tycoon J Howard Marshall II -- might be a potential buyer as it was believed to have been a bidder for Carter Holt.

But executives at Koch, the world's largest private company, could still be grumpy as they were rumoured to be at an airport on the way to New Zealand when they got a call telling them Hart beat them to IP's stake in Carter Holt.

Koch may have its hands full just now -- it's lining up a $US10b ($NZ14.6b) bid for General Electric's plastics unit.

If Hart can build global positions in the various segments that made up Carter Holt he may be able to surmount the problem of poor control over global markets that Carter Holt never overcame.

If he does, he will have attractive businesses to sell and he will also have done the whole country a favour.

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