Burns Philp

New Zealand billionaire Graeme Hart has sold his shareholding in Goodman Fielder, the Australasian food giant he floated in 2005. The company said late last night that the near-20 per cent stake of New Zealand's richest man had fetched about A$562 million ($675.8 million).

Analysts said the sale would free up Hart to pursue acquisitions in the packaging sector, where he has been building assets, but was unlikely to put Goodman Fielder into play as a takeover target in the near future.

The sale of 265 million shares by Hart's Burns, Philp and Co through a subsidiary, BPC Finance (NZ), was made via a bookbuilding underwritten by Credit Suisse, Goodman Fielder said.  The company, whose brands include Mighty Soft, Meadow Fresh, ETA and Meadow Lea margarine, had its Australian shares placed on trading halt late on Thursday pending an announcement. Trading was also halted in New Zealand yesterday with a closing price of $2.70 a share.

CommSec analyst Grant Saligari noted that Goodman Fielder and other food and beverage firms faced tough conditions as Australia's worsening drought has pushed up wheat, dairy and oilseed prices. Goodman Fielder's shares last traded in Australia at A$2.23. They are little changed from the start of the year, but rose as high as A$2.80 in April. The broader market is up 18.5 per cent this year.

The Australian Financial Review said institutions had been asked to bid for Hart's stake at between A$2.12 a share and Thursday's close. Goodman's 2006/07 financial year net profit fell 38 per cent to A$239.8 million. It made a number of small acquisitions in the past year, including River Mill Bakeries in New Zealand.

Hart's sell-out of Goodman Fielder is the latest in a line of major deals by the one-time tow-truck driver. He bought and de-listed forest products giant Carter Holt Harvey last year for $3.3 billion and has since put its building supplies business up for sale, including 18 sawmill and manufacturing plants in NZ and Australia. The building supplies business sale is expected to fetch more than $2.3 billion. Macquarie Equities investment director Arthur Lim said the sale of assets did not necessarily mean Hart had another acquisition lined up.

However, he did have a track record of surprising the market. Hart has sold most of Carter Holt's forests for up to $2 billion, and the head office, various retail depots and packaging plants for more than $300 million. A successful sale of the timber products business would see Hart more than recover his outlay, with the strategic retention the firm's packaging division.

This year, Hart paid US$338 million for North Carolina-based Blue Ridge Paper Products and is merging it with Evergreen Packaging in Arkansas. Meanwhile, he has also completed a $3.2 billion acquisition of Swiss packaging group SIG.

Hart may be building a paper packaging empire but Lim would not be surprised to see him make an acquisition in another direction. "How about SkyCity? It wouldn't surprise me. It's a company that's been mismanaged. It's got core assets and it's got assets scattered about Australia and New Zealand that lends itself potentially to being sold." Hart's sell down would not trouble Goodman Fielder, Lim said. "Goodman Fielder has been its own company for quite a while now."

Selling out

• Graeme Hart has sold his Goodman Fielder holding.
• The sale of the 265 million shares was made via a bookbuilding underwritten by Credit Suisse.
• Hart is also selling Carter Holt Harvey's building supplies business for more than $2.3 billion.

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.

Graeme Hart has capped off an epic year of wheeling and dealing by selling his Bluebird snack business to US food and drinks giant Pepsico for $245 million.

Pepsico has one of the world's biggest salty-snack food businesses in Frito-lay, but has never had a presence in New Zealand. It was tipped this year as a likely contender to take Bluebird.

In 2003, when Hart was taking over Goodman Fielder, a partnership between Pepsico and Pacific Equity Partners was regarded as his most serious rival bidder.

The sale, due to be completed by January 4, completes the break-up of Burns Philp - the venerable Australian food company which Hart bought into in 1997 and paid $1.5 billion to gain complete control of last month.

The price tag is in line with market expectations, so it will not alter calculations of Hart's wealth, but it does add to the growing cash pile he and his Rank Group team have available to make more acquisitions.

The NBR Rich List put his fortune at $2.75 billion in July.  As usual, the media-shy Hart was not available yesterday. 

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.  Analysts say he has enough equity to raise money for acquisitions worth more than $12 billion.

And that is not counting the unknown level of equity he now has in Carter Holt Harvey.  Hart took over and delisted the forest products company in March, paying about $3.3 billion.

It is not known what level of debt he took on.  He has since sold most of the group's forests to American firm Hancock for about $1.5 billion.

Last year, Bluebird bought Krispa and Aztec from Hansells NZ - then owned by Gary Lane.

Speculation has now turned to Hart's next acquisition.  He is understood to have looked at Australian packaging company Amcor, but has not made a move towards buying it.  Market commentators say the frenzy of private equity in Australia has pushed prices higher than Hart is interested in paying.

BUYING, SELLING
* 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, and buys a mill in Pine Bluff, Arkansas, and other beverage packaging plants from International Paper for between US$500 million and US$600 million.
* November: Hart gains full control of Burns Philp.
* Yesterday: Sells Bluebird for $245 million.

Graeme Hart and Eric Watson have little in common except that they are both extremely rich and have made recent takeover offers for their listed vehicles.

As the accompanying table shows, the 21st century has been particularly prosperous for both individuals with Hart's net worth leaping from $200 million to $2.75 billion, while Watson has jumped from $110 million to $500 million (the latter figure has recently been revised up from $350 million).

But the two businessmen have travelled different paths to achieve their wealth. Hart has been hands-on, focused and has built a team of extremely competent associates while Watson has been a relatively passive investor with little focus and has failed to build a competent support team.

In addition, Hart has created wealth for minority shareholders in his listed companies whereas a large percentage of individuals who invested in Watson's numerous stock exchange vehicles have lost money.

This is the reason why investors will be hoping that Hart returns to the sharemarket if his bid for Burns Philp is successful. It is highly unlikely, though, that the NZX will see Watson again after he completes the PRG Group acquisition.

There was only the faintest sign of Hart's impending success at the Whitcoulls annual meeting in the Kupe Room, Aotea Centre, on October 25, 1995. No more than 20 or 30 shareholders attended, the meeting was over in a flash and the highlight was Hart's young son making happy noises at the back of the room.

Whitcoulls had just reported a 16 per cent reduction in net earnings to $20.2 million, mainly due to the disappointing performance of the Australian acquisition Angus & Robertson. Hart's 64.5 per cent Whitcoulls stake had a sharemarket value of $170 million at the time (the listed entity was called Rank Group until Whitcoulls was acquired from Brierley Investments in 1991).

The next year, Hart made a successful bid for Whitcoulls, valuing it at $282 million and, shortly afterwards, onsold it to Blue Star for $320 million. Eric Watson was running Blue Star and Maurice Kidd, his long-time business associate, was its financial controller.

In mid-1997, Hart purchased 19.9 per cent of Australian food conglomerate Burns Philp for A$260 million or A$2.50 a share. Three months later, Burns Philp's share price had fallen below A$1 after a poor result and Hart's investment was worth less than A$50 million.

The National Business Review's Rich List estimated that Hart's net wealth had plunged from $200 million in 1997 to a mere $25 million in 1998.

But Hart's true qualities came to the fore during this difficult period. He played a major role in Burns Philp's turnaround, which included the acquisition and subsequent 80 per cent sale of Goodman Fielder.

The country's richest individual has gone from strength to strength and, this year, completed the takeover of Carter Holt Harvey for $3.3 billion. His offer for the remaining 42.6 per cent of Burns Philp, which values the company at A$3.1 billion ($3.7 billion), will cost Hart A$1.3 billion.

As Hart's shareholding in Burns Philp is worth more than A$1.7 billion, the Sydney-based company represents a large proportion of his wealth. If the Burns Philp offer is successful, Hart will obtain full control of nearly A$2.5 billion of cash, a 20 per cent Goodman Fielder stake worth in excess of A$500 million and NZ Snacks, which has an estimated value of nearly A$200 million.

The deal makes sense for Hart and his bankers as he will get full access to almost A$2.5 billion of cash for an outlay of only A$1.3 billion. Hart may also believe the huge amount of private equity money has inflated asset prices and there are limited attractive opportunities for Burns Philp to utilise its cash.

This contrarian approach is an important part of Hart's success, as is his ability to execute deals, make these acquisitions work and attract and keep top-quality executives.

By contrast, Watson is a deal-maker with limited operational abilities and, most importantly, an inability to attract and retain top-quality executives. A notable exception is Stefan Preston, who runs Bendon for PRG.

Watson first became involved in PRG (then called Pacific Retail Group) in 1998 when he made a takeover offer at $1.30 a share. This valued the target company at $59 million. Watson ended up with 73.7 per cent after the two major shareholders, Murray International (58 per cent) and Roger Bhatnagar/Greg Lancaster (12 per cent), sold to him.

Watson made another unsuccessful offer in 2001 at $1.76 a share. This valued the target company at $89 million.

The next year, he made a third bid at $2.25 a share. This valued PRG at $116 million, but Grant Samuel produced a strong negative response after assessing the company was worth between $223 million and $248 million ($4.31 to $4.80 a share).

Watson then turned PRG into an investment company and one of his first investments was a stake in Burns Philp.

Meanwhile, he became involved in several listed companies including RMG (in receivership), Strathmore (now Media Technology), Eldercare (Abano), Advantage (Provenco), Metlifecare and AQL (Certified Organic).

PRG made the ill-conceived PowerHouse acquisition in 2003 and as a result has had to sell Noel Leeming, Bond & Bond and PRG Finance Group. PowerHouse has been a disaster for PRG and the company hasn't paid a dividend under Watson's stewardship.

Watson's fourth offer for PRG at $1.22 a share values the company at only $76 million compared with Grant Samuel's mid-point valuation of $235 million four years ago.

This offer will be successful because the bidder started with 81.3 per cent, AXA has accepted in respect of its 12.3 per cent (AXA effectively stymied Watson's earlier offers) and Grant Samuel now values the company at between $66 million and $107 million ($1.06 and $1.72 a share).

It will cost Watson $14.2 million to acquire the outstanding 18.7 per cent and, in return, he will obtain full control of Bendon, Living & Giving and an unknown amount of cash.

It is difficult to ascertain PRG's true financial position because PowerHouse was placed in administration in the UK this month, the company has not released its March 2006 year annual report and is delisted from the NZX.

The huge spread in Grant Samuel's valuation range indicates that PRG is in a mess and there is much uncertainty over the true value of the company.

By contrast, Burns Philp is in great shape and is relatively easy to value.

Watson's stewardship of PRG has been a disaster yet his net wealth has risen from $275 million to $500 million since the PowerHouse acquisition. The main reason for this is his relatively passive holding in the unlisted Hanover Group. The true value of this holding can only be ascertained when he sells his stake through a trade sale, IPO or to the other Hanover shareholder.

The capitulation of AXA to the PRG offer clearly indicates that sharemarket investors have had enough of Watson. His PowerHouse acquisition was the last straw and he seems to have limited ability to extract himself from difficult situations, unlike Hart with Angus & Robertson and Burns Philp in the 1990s.