Breather a reward after bruising saga

Kerry McDonald stuck with CHH to the end of the takeover negotiations, despite being invited to resign in October. Picture / Dean Purcell

Kerry McDonald is taking a break. The professional director and stalwart of the New Zealand business scene has just emerged from an often-bruising $3.3 billion takeover battle for forestry giant Carter Holt Harvey.

During the four-month saga, McDonald led the independent directors assessing the merits of billionaire Graeme Hart's audacious takeover.

Having resigned from the board last week, shortly after Hart closed his $2.50-a-share offer, McDonald is now on his annual skiing trip to Whistler in Canada with his wife of 24 years, Luvaine. (A skiing accident in Australia 10 years ago, however, will keep her off the slopes).

"There is a little bit of relief [over CHH]. If we had still been at the level of activity that we had been in September or October we would not be going," he says at Auckland International Airport shortly before leaving.

He could have bailed out of CHH earlier. Indeed, Hart asked McDonald and fellow independent director Helen Nugent to resign in October soon after he bought a 51 per cent stake from the United States forestry giant International Paper.

But McDonald and Nugent insisted they stay on until the takeover was completed. They doubted their replacements would achieve the same level of understanding of CHH and would be less able to fulfil their responsibilities to protect and advocate for minority shareholders.

McDonald said the development highlighted a major weakness in the Takeovers Code. He will be lobbying for changes to ensure a bidder cannot take control of a company until a takeover offer is complete.

"In one step, without any involvement of the independent directors, [Hart] acquired control of the entire company."

The difficult situation was highlighted by CHH's mid-October profit warning. This revised figures that had formed the basis of independent directors' rejection of Hart's $2.50-a-share takeover offer. After the warning, those directors reversed their earlier view and recommended the bid.

"The takeover process was pretty challenging," McDonald says.

Hart conducted himself appropriately throughout the offer period.

But McDonald says CHH is "unfinished business". Some of the changes Hart is making to the company are needed. McDonald said some he had recommended to the board.

Rumours continue to swirl that Hart has put CHH's well-forested Manukau campus up for sale. CHH last week dismissed the talk but McDonald reckons it would be the right move, saying the headquarters should reflect the prospects of the business as it sends an important signal.

He is non-committal on why his ideas failed to pass board scrutiny before, saying only that debate was robust and that his was an opinion among many.

For the record, McDonald will continue to hold his 30,000 shares in CHH, rejecting even Hart's latest $2.75 offer.

Away from CHH, McDonald has plenty on his plate.

Apart from skiing, riding his lime-green Kawasaki Ninja (a huge road bike), reading, gardening and keeping in touch with his two adult children, he sits on a wide range of public and private organisations.

He divides his month in two, one half to his directorships and public roles, the other half to his hobbies and speeches. Although based in Wellington, he spends much of his time at his house at Ohakune below Turoa, where he also maintains an office.

"I manage my time pretty carefully. I like company directorships. I like being involved in business and the challenges around that. A lot of it is not easy, but it is always interesting."

His private roles include chairman of the Bank of New Zealand and Oceania Gold, and directorships of BNZ parent National Australia Bank, Ports of Auckland and the NZ Institute of Economic Research.

Public roles include the Institute of Directors national council, the Japan New Zealand Business Council, the Australia New Zealand Business Council and chairman of the Australia-New Zealand Leadership Forum, a top-level meeting of transtasman opinion formers.

He is a passionate advocate for reform in New Zealand, motivated in part by a gloomy assessment of the country's recent development.

He says relative to the rest of the world, New Zealand is going backwards. He points to Australia, where growth in per capita output, productivity, exports and savings has outstripped New Zealand's for decades.

"If our GDP had grown at the same rate as Australia's, we would have roughly 40 per cent more in Government revenue to be spent on a wide range of areas.

"By slow productivity growth, we are constraining the economy to invest in key areas and policy programmes." McDonald says the Government is not fully alert to the issues and their significance.

"There is quite a lot of talk of a short-term downturn in the economy. That to me is a minor issue.

"The big issue is the serious structural weaknesses in the economy."

Strong terms of trade, thanks to high export prices, and a surge in immigration have insulated the economy over the past five years, but now New Zealand needs to get on the bandwagon.

He sees potential for reform across all areas of the economy.

The energy sector is not competitive, the market does not work efficiently and regulation is poor. Ditto for telecommunications markets.

"In broadband, people are slowly getting excited about that issue, but we should have been excited about it eight or nine years ago."

Does that mean he supports structural separation of Telecom's network operations from its retail operations?

"Exactly," McDonald replies. "And a more competitive environment around telecoms. Telecom is the cornerstone of the telecommunications sector. I do not want it cut to the core, but I do want policies that stop it from restricting the development of new and competing technologies."

In trade, the country is negotiating a free trade agreement with China but is doing little to provide the conditions enabling business to compete.

He says this the lack of emphasis means business is conservative and afraid to take risks. In forestry, no one is preparing for the deluge of trees due to be harvested in the coming decade.

"What you need is an economy where the leading-edge sectors are stretching, where there is a big appetite for risk-taking."

The present conditions will eventually limit New Zealanders' access to technology, healthcare and education.

"At the bottom end of the social scale, you have a substantial part of the New Zealand community who are unacceptably low-income ... That does not give them an acceptable standard of housing or education, clothing or medical care.

"The contrast between the top quartile and the bottom quartile is sharp. To me that is a recipe for social unrest."

KERRY McDONALD

Age 64
Education Canterbury University.
BCom Economics 1964.
Mcom (Hons) Economics 1967.
Employment history
1961-1962 BP Oil.
1965-1967 NZ Institute of Economic Research.
1967-1968 Senior commodity economist, Commonwealth Secretariat, London, editor, World Grain Trade Yearbook.
1969-1975 Research officer, senior research officer, contracts manager, NZIER.
1976-1981 Director, NZIER
1981-1986 Comalco, Melbourne. Group economist.
1986-1988 General manager (business analysis and power), Comalco Smelting, Melbourne.
1988-2000 Managing director, Comalco New Zealand, Wellington,
2000-June 2003 Executive director/deputy chairman, Comalco New Zealand
June Company director, adviser.