Windfall possible for hardy CHH shareholders

Billionaire businessman Graeme Hart could have his work cut out mopping up all of Carter Holt Harvey's minor shareholders.

Brokerage Goldman Sachs JB Were has issued a report valuing the forest products firm at as high as $5 -- double the $2.50 Mr Hart's investment vehicle, Rank Group, is offering.

The report's co-authors, head of research Peter Sigley, and independent researcher, David Stanley, say the market is witnessing a classic Rank play: acquiring control of an "out-of-favour" company at the bottom of the cycle.

With a little Hart magic -- as witnessed with his previous investments, Burns Philp, Goodman Fielder and NZ Dairy foods -- the pair estimate the value potential for the shares over the medium to long term at more than $4.32.

"We consider it entirely possible for this value to be leveraged closer to $5 per share, especially if material asset sales are forthcoming in the near term," Mr Sigley and Mr Stanley wrote.

Mr Hart currently owns just over 75 per cent of Carter Holt -- enough to make certain decisions, including asset sales, without minority shareholder approval.

He needs 90 per cent before the closing date of November 25 to trigger a compulsory takeover of all minority shareholdings.

Carter Holt is exposed to two major business cycles -- the global pulp and paperboard cycle and the Australian and New Zealand business cycles.

Low pulp prices and the high New Zealand dollar saw Carter Holt last month downgrade its full year 2005 earnings forecast to $200 million, the third revision in three months.

That triggered an about-face by the firm's independent directors, who signalled they had lost confidence in management forecasts and recommended shareholders accept the Rank bid.

While stopping short of a "buy" recommendation, the Goldman Sachs report recommends investors with a longer term horizon -- and an appetite for risk -- hold onto the stock.

Mr Sigley and Mr Stanley estimate the current sum-of-the-parts value at $2.84, against a revised valuation range of $2.43-$2.90 per share by independent valuers Grant Samuel.

"Rank will realise the considerably higher value of Carter Holt than is represented in the current share price over time," they said.

Key assumptions of the Goldman Sachs valuation include the sale of forestlands to private funds; reducing the diversity of businesses by a combination of divestment and acquisition; a re-orientation of the pulp and paperboard operations to reduce the volatility of returns; and uncovering value in other assets, including taxation assets.

Investors who decide to stick with Carter Holt will need to be patient, with a time frame stretching into years, rather than months.

Shares in Carter Holt were trading up a cent at $2.52 by early afternoon.

- NZPA