Carter Holt shares surge

Shares in New Zealand's third-largest listed company, Carter Holt Harvey, closed up 4.6 per cent - or 11c - yesterday in the first day of trading since news of its $441 million forest sale.

At $2.49, that was its highest in almost 11 months.

The shares have gained 29 per cent since majority shareholder International Paper said 23 days ago it was looking to exit, a move that could trigger a break-up of the wood products and forestry company.

Sharebrokers and market players said yesterday's rise reflected a better-than-expected price and relief that a deal had been done.

"Forest sales haven't been that easy to get away," said Kevin Bennett of Alliance Capital Management.

As investors smiled, some analysts were revisiting break-up valuations for the rest of the estate after learning of a tax role in the deal.

One said he expected to increase his valuation.

The tax twist: despite a deferred liability estimated at about $116 million on the forests and land, Carter Holt will be landed with only about $38 million of tax on the deal, due to settle in October.

Most of the assets are housed in a separate company.

When Carter Holt sells that company, the tax liability associated with those assets will pass to the buyer, the consortium headed by RREEF Infrastructure, part of Deutsche Asset Management.

In a conference call yesterday, Carter Holt said about two-thirds of the remaining estate, which has a book value of $320 million for land and $1.2 billion for trees, was held in a similar vehicle.

Chief executive Peter Springford reiterated yesterday that further forest sales were "not contemplated at this stage".

Carter Holt announced the sale of almost 95,000ha of its forest estate late on Friday.

It is close to one-third of the estate by size but a quarter by value, the company says.

Springford said it was "a bit of a stretch" to suggest the success of the sales process increased the chance of a break-up to realise the value of the rest of the company's assets.

"All it does is say that there is increased confidence in the forestry sector which is good news for the industry and it also supports the valuation that we have on our balance sheet for our current forests."

After $38 million in tax and about $18 million in transaction costs, the sale will net about $385 million.

Carter Holt is deferring a decision on what to do with the proceeds until more is known about International Paper's intentions.

"It is premature to think too much about it, given that there is a strategic review of the company going on," said Springford.

Carter Holt is due to report its half-year earnings on Thursday, and analysts expect the "challenging" trading conditions of the first quarter to feature in the second.

"We're expecting very poor earnings from the pulp and paper division. To be honest, at this point in time, Carter Holt Harvey is now a break-up play - it becomes quite clear now that the value of the assets can only be crystallised in a break-up situation," ABN Amro analyst Dennis Lee said.