KEY POINTS:
Fletcher Building could face regulatory hurdles on both sides of the Tasman if it tries to buy the $2.4 billion wood product and distribution assets of Carter Holt Harvey, an analyst's report says.
First NZ Capital's Andrew Mortimer speculates that Government regulatory bodies here and in Australia might
oppose such a deal because of anti-competitive rules.
At stake is $2.4 billion of assets owned by Graeme Hart's Rank Group, which has 18 sawmills and wood manufacturing plants on both sides of the Tasman, and distribution networks, manufacturing and marketing operations.
Mortimer said: "It has been speculated that Fletcher Building may on its own, or in consortium, be interested in all or some of the wood product and distribution assets owned by Carter Holt Harvey and controlled by Rank Group which are currently for sale."
Fletcher Building yesterday denied rumours it was making a joint bid with Australian rival Boral.
Mortimer wrote: "We agree that the company is likely to have considerable interest in the businesses but note that given the strong market position of Carter Holt Harvey across some products in combination with Fletcher Building's own not insignificant market shares, the Australian Competition and Consumer Commission and the New Zealand Commerce Commission might have intractable concerns to allow a full acquisition."
Other analysts agreed saying the crunch here would be any merger between the operations of Fletcher's giant PlaceMakers network with the Carter retail chain in New Zealand.
Mortimer said the issue in Australia would be possible monopoly positions in two building product materials.
Speculation is that a group of Fletcher senior executives, including chief executive Jonathan Ling, chief financial officer Bill Roest, building products chief executive Chris Ellis and company secretary Martin Farrell, are working on the deal.
Mortimer said some aspects of Fletcher's move on Carters made sense. "[But] Given the size, a full acquisition - if allowed - would require an equity raising in excess of $1 billion, if debt financing was extended to the top end of Fletcher's debt-to-equity comfort range of 40 per cent to 50 per cent."
Reports emerged this month that Fletcher might battle Boral and Weyerhaeuser for Carter's timber products division. The assets are expected to fetch about $2.4 billion, topping the $2.24 billion Telecom attracted for its Yellow Pages.