Rank Group

Fletcher Building will not buy all the Carter Holt Harvey assets put on the block by billionaire Graeme Hart, but might acquire small parts of the businesses.  Speaking after yesterday's annual meeting in Auckland, Fletcher chief executive Jonathan Ling said the building materials manufacturer and distributor would not make any big acquisitions within the next three months.

Mr Hart is selling building product makers and marketers Wood Products New Zealand and Wood Products Australia, the Carters building materials chain, and furniture and joinery business Interion.  Fletcher Building. advised by investment bank Goldman Sachs JBWere, is understood to have looked at these businesses.  However, Carter Holt owner Rank wants to complete any sale, which analysts expect to be about $2 billion, by the end of the year.

Asked about the potential for big acquisitions, Mr Ling said: "There's nothing of any size in the pipeline at the moment."  Asked specifically about the Carter Holt asset sale, he declined to comment, citing confidentiality obligations.  It is understood Fletcher could buy small parts of the businesses, possibly as part of a consortium.  However, international private equity group CVC Capital Partners is believed to be the frontrunner to acquire the Carter Holt assets. 

Mr Ling said Fletcher's current focus was integrating July's US$700 million (NZ$929 million) acquisition of benchtop group Formica from private equity groups Cerberus Capital Management and Oaktree Capital Management.  Mr Ling said the planned closure of a Formica factory in California and the doubling of production at an Ohio factory were running behind schedule.

Fletcher will pay Cerberus and Oaktree a further US$50 million if this restructuring is finished by June 30. Mr Ling said delays would affect this payment but, citing confidentiality agreements, he declined to say how.

Formica's Asian and European operations, which comprise about two-thirds of its business, were performing better than expected, helping to offset the slowing United States economy, he said.  Predicted savings from combining Formica with Fletcher's Laminex business, about $13 million in 2007-08, were on track.

Chairman Roderick Deane said Fletcher's net earnings for the first four months of 2007-08 were ahead of the same stage last year both with and without the inclusion of Formica.

Fletcher was "comfortable" with analysts' forecasts for annual earnings after tax and before unusual items of between $450 million and $460 million.  After removing one-off tax and insurance benefits, last year's profit rose 5 per cent to $399 million. At more than $1 billion, Fletcher's construction backlog was at record levels, Mr Ling said.

Fletcher shares rose 12 cents to $11.30 yesterday.

Competition concerns are likely to prevent Fletcher Building from buying all of the wood products assets put up for sale by Carter Holt Harvey (CHH), analysts say.  However, Fletcher Building could end up with most of the New Zealand businesses, paying around $800 million and staying within its debt comfort zone.  Auspine, Hyne or Weyerhaeuser are the likely buyers of the Australian assets.

CHH's wood products businesses, put on the block by Graeme Hart's Rank Group, have a price tag of $2 billion to $2.5 billion.  The Commerce Commission and its trans-Tasman counterpart, the Australian Competition and Consumer Commission, would balk at Fletcher Building swallowing all of the operations on sale - Wood Products NZ, Wood Products Australia and the Carters retail chain, First NZ Capital analyst Andrew Mortimer said.

Fletcher Building owns the Placemakers chain, which buys more than half of CHH's domestic lumber. It therefore has a strategic opportunity to lock in security of supply, Mortimer said.  But the potential for vertical integration would worry the Commerce Commission.

A bigger hurdle was the particle board market which would be 100% owned by Fletcher Building if it subsumed CHH.  The companies dominate the medium density fibreboard market between them and Mortimer said a combination of these assets was unlikely to be allowed.  Combining CHH and Placemakers presented fewer problems as consolidation would comprise only 36% of the building supplies market.

Fletcher Building might also not want to see CHH fall into a competitor's hands. The combined sales in the trade market, however, "might aggregate to around 45% within acceptable levels so as to not substantially lessen competition".  "Of more concern might be the consolidation of market share in certain product lines, including timber, insulation and wallboard."  The company faces a big hurdle if it wants to own both CHH's manufacturing and distribution businesses.

Nevertheless, Fletcher Building should be interested in the New Zealand wood products and distribution businesses, given the improved distribution capability and the ability to secure supply, Mortimer said.  More margin might be available in the supply chain under Fletcher Building ownership.  However, there was little value for Fletcher Building in CHH's Australian assets. "Fletcher would have no particular distribution advantage and would acquire only a modestly attractive market share."

US firm Weyerhaeuser, which has just sold its New Zealand forestry interests, was a more natural candidate for the Australian business. CHH, Weyerhaeuser and another company, Hyne, command around 60% of the softwood lumber market across the Tasman and the acquisition of CHH would present both with an excellent consolidation opportunity.

The Australian market is fragmented and the CHH sale presents a chance for one of these three players to consolidate. Interested parties are understood to be conducting due diligence and indicative bids for CHH are expected this week. Final bids are due by late November.

Graeme Hart is finishing off the year with a $3.5 billion play for packaging assets around the world.

His company Rank yesterday disclosed it was buying International Paper's drinks packaging division for $725 million and launching a takeover bid for listed Swiss packaging group SIG that values the firm's shares at $2.8 billion.

The bid puts Hart in the thick of a takeover battle. His offer trumps an earlier bid for SIG - by Norway's Elopak and private equity group CVC Capital Partners.

If he gets both assets they would link with the packaging business of Carter Holt Harvey - the former International Paper subsidiary he acquired at the start of this year for $3.3 billion - and will set the billionaire on his way to become a force in international packaging.

"Combined, the two businesses would have sales of $US2.75 billion ($4 billion), employ 7700 people and would offer a range of beverage and food packaging solutions from a global network capable of servicing regional and multinational customers," Rank said last night.  Carter Holt's packaging business has sales of about $600 million.

Before the announcement, SIG's shares in Switzerland were trading at 358 Swiss francs ($423.8), below Hart's bid of 370 franc but above the Elopak offer of 325 francs.

SIG manufactures cartons for food and drink products, as well as machinery and in 2005 it had sales of $2.7 billion. It employs more than 4700 people and is divided into two divisions - Combibloc and Beverages.

Rank said the acquisition of International Paper's beverage packaging arm was expected to close on January 31, subject to the receipt of regulatory approvals and other conditions.

It specialises in producing liquid paperboard packaging for fresh milk, dairy and juice. It includes a 700,000-tonne pulp and paper mill at Pine Bluff in Arkansas - similar in size to the Carter Holt Harvey Kinleith mill - as well as other facilities scattered across the US, Canada and Asia.  The business employs about 3000 people and produces more than 670,000 tonnes annually of packaging. The business had net sales of about $US859 million in 2005.

The deal caps off an epic year for the billionaire, that started with the privatisation of Carter Holt.

This month he completed the break-up of Burns Philp - the Australian food company which he bought into in 1997 - when he sold his Bluebird snack business to US food and drinks giant Pepsico for $245 million.  In May, Burns Philp's Uncle Toby brand was sold to Nestle for about $1.1 billion. That and the float of the Goodman Fielder business last year gave Burns Philp $2.9 billion, net of debt. Hart privatised Burns in November for $1.5 billion.

At the time analysts said he had enough equity to raise money for acquisitions worth more than $12 billion. That was not counting the unknown level of equity he has in Carter Holt Harvey.  He has since sold most of the group's forests to American firm Hancock for about $1.5 billion.

Hart is also understood to have looked at Australian packaging company Amcor. Market commentators say the frenzy of private equity in Australia has pushed prices higher than Hart is interested in paying.

BIG MONEY
* March: after paying more than $3.3 billion, Hart gains full control of Carter Holt Harvey.
* May: Burns Philp sells Uncle Toby's business to Nestle for $1.1 billion.
* August: Hart makes full takeover bid for Burns Philp.
* October: CHH buys nine ITM hardware stores. CHH sells forest assets for $1.5 billion.
* November: Hart gains full control of Burns Philp.
* December 7: Sells Bluebird for $245 million.
* December 19: Agrees to buy International Paper's drinks packaging business for $725 million and launches bid for Switzerland's SIG.

Australasian food giant Goodman Fielder is restructuring its New Zealand division, a move which has prompted the resignation of local managing director Alison Taylor.

The listed company's dairy and baking businesses in New Zealand will now operate as individual business units rather than as part of a larger GF Fresh New Zealand division.

Taylor will leave next month.  There were no plans for downsizing, job cuts or other changes, a Goodman Fielder spokesman said.

"I'm sure there'll be gains but savings isn't the issue, it's a matter of providing focus to the business."  Taylor had the option of staying, he said.  "But she's chosen to go, which is fair enough because her job's a bit smaller now than what it was."

The purpose of the restructuring was to improve the performance of both businesses "particularly the dairy business, and to that end, they've appointed a specialist in that area", the spokesman said.

David Glik - currently group executive, marketing and innovation at National Foods - will become managing director of Goodman Fielder's New Zealand Fresh Dairy division.  Phil Hand has been appointed managing director of the Fresh Baking New Zealand division and will report to GF Fresh Baking managing director Gordon Hardie.

In November the company said it expected to meet its forecast earnings and dividend for the year despite expecting difficult trading conditions in the last part of the year.

Last week Goodman Fielder confirmed it would pay the full acquisition price of $869.59 million for New Zealand Dairy Foods Holdings, which had achieved revenue targets since the deal was announced.

The company's share price closed unchanged at $2.58 yesterday. It has risen 9c since the start of the year.

Goodman Fielder was delisted in 2003 when Graeme Hart vehicle Burns Philp executed a A$2.25 billion ($2.54 billion) takeover.  The business, plus dairy assets belonging to Hart's Rank company, was relisted in December, 2005 ,by Burns Philp with a value of A$2.65 billion and raising A$2.12 billion.

Hart bought into Burns Philp in 1997 and in November was successful in his bid to take full control of the company - gaining access to its $2.9 billion in cash, Blue Bird Foods and a 20 per cent stake in Goodman Fielder.

GOODMAN FIELDER
* More than 6000 employees across Australia and New Zealand.
* Brands include Vogel's, Freya's, Meadow Fresh, Tararua and Kiwi Bacon.
* Products delivered to more than 29,000 outlets every day.
* Graeme Hart still owns a 20 per cent stake.

Goodman Fielder Limited confirms the final consideration payable for the acquisition of New Zealand Dairy Foods Holdings Limited from the Rank Group is NZ$869.591 million.

The consideration consists of a Base Amount of NZ$609.64 million, which was paid on completion of the acquisition, and an Earn Out Amount of NZ$259.951 million. The Earn Out Amount was determined on the basis of an increase of NZ$30.6 million in the annualised EBITDA of the New Zealand Dairy Foods business arising from the implementation of value-add improvements that had been agreed between Rank Group and Goodman Fielder.

FOOD, TIMBER

Worth: $2.75 billion

GRAEME HART'S smile has hardly left the business pages all year - not surprising, given the deals he has pulled.

One of the reasons he has been so prominent is that he has had something to sell - the Goodman Fielder float saw the entrepreneur call a rare press conference, giving photographers and television crews the chance to update their files.

Alas, no sooner had his food company Burns Philp sold off Goodman Fielder than Hart was back into recluse mode, refusing interviews, including one for the Rich List.  "Graeme doesn't give interviews," a spokeswoman for Hart's investment company Rank Group said. Well, not unless he has good reason to.

Hart might be media shy but he can't stay out of the news. Around the middle of last year some investment bankers were wondering whether the high levels of corporate activity seen in the first half might be over.

There were fewer deals happening and the enthusiasm for buy-outs, mergers and equity raisings appeared to have abated And then Hart came along.

In less than two months, the Kiwi entrepreneur struck three major deals to turn the local corporate environment on its head.

First, his private company Rank Group sold most of the New Zealand Dairy Foods assets back to Fonterra for three times the purchase price, taking in return assets worth $416 million and $338 million in cash. The assets were part of a package later sold to Goodman Fielder for $746 million.

Then he caught the investment banking community on the hop, buying International Paper's controlling stake in Carter Holt Harvey and offering to buy out the remaining shareholders in a deal worth $3.3 billion.

As if that wasn't enough, Hart further stunned the investment community by announcing his food group Burns Philp would buy Dairy Foods from Rank and revive the Goodman Fielder name in a combined sharemarket float worth more than $2 billion.

The Goodman Fielder float and a subsequent sale of Uncle Tobys left Hart's Burns Philp with a war chest of $3.5 billion.  If Hart was comfortable making a heavily leveraged buy - as he has been in the past - Burns Philp could make a purchase worth up to $A6 billion, a Credit Suisse report estimated earlier this year.

Others estimate an even bigger plunge - stockbroker ABN Amro noted Burns Philp could afford an acquisition of $15 billion.  High profile companies such as Lion Nathan and Telecom New Zealand are among the speculated targets but Hart always keeps his cards close to his chest.

There is also the question of what plans he has for Carter Holt, now the company is delisted from the stock exchange, giving Hart greater freedom to restructure and sell parts of the company.  Most of the short term speculation centres on a sale of Carter Holt's 330,000ha of forests, believed to be worth up to $1.37 billion.

But Hart is far from conventional, eschewing business associations or business gatherings so any information is hard to come by.

While he obviously loves transforming companies, Hart's other passions revolve around his family, his home and his boat - a $100 million yacht, Ulysses.

2005: $2 billion