Tenon mill sale no done deal

Carter Holt Harvey got clearance from the Commerce Commission yesterday to buy Tenon's structural timber business, but a deal is not in the bag.

The potential buyers and the seller are playing games right up to the last minute as the deal takes much longer than expected.

Tenon shareholders will be updated at their annual meeting in Auckland today. Latest speculation is that Carter Holt Harvey has put in a low bid and three private equity firms are also vying for the business.

The deal is delayed because it is taking time to disentangle Tenon's complex wood supply arrangements that make sure that the mills it is selling get the right sort of wood.

A private equity buyer would buy other businesses to create a larger company that could later be floated on the stock exchange as a building products company.

However, many investment bankers think the interest from private equity firms is being played up to put pressure on Carter Holt - the buyer most able to extract cost savings from the purchase.

The sale process also waited on the commission's decision, originally expected on December 6.

It is an intriguing game of bluff. Carter Holt has to decide if the private equity buyers are credible.

It is three months since Tenon - formerly Fletcher Challenge Forests - said it was forced to run a sales process for central North Island sawmills because it had been approached by several potential buyers.

Analysts had thought there would be a problem with dominance in the supply of plywood if Carter Holt bought the business, but the commission did not agree.

The assets for sale consist of the Kawerau sawmill, the Rainbow Mountain sawmill near Rotorua, a Mt Maunganui plywood business and Ramsey Roundwood, which makes landscaping products.

The businesses are being sold in one package. They were valued at $123 million to $144 million by Grant Samuel, before new equipment was put into the Kawerau mill.

Tenon shareholders are expected to approve a $321 million return of capital at today's meeting, the second capital return from the $725 million sale of Fletcher Challenge's forests.

Tenon may yet decide not to sell its structural sawmills. But if it does sell, the company that only two years ago contemplated buying the huge Kaingaroa estate will have sold all its forests and most of its mills.

It will be left with a sawmill and mouldings plant in Taupo and a North American distribution network into North America. Yet it has about 38,000 shareholders.

Its majority shareholder is now Rubicon, another former Fletcher Challenge company.

Carter Holt will next year try to sell a third of its forests. It is concentrating on the structural timber business, pulp and paper mills, and packaging.

It has a major presence in Australia and is expanding into China.

Analysts expect Carter Holt to put plans to build this country's biggest-ever sawmill on hold if it buys Tenon's mills.

A purchase would solidify Carter Holt's position in the central North Island but raise questions about its commitment to Northland, an emerging region for forestry.