Hart edges closer to 90pc of CHH

Graeme Hart

Odds are shortening on Graeme Hart taking control of forestry giant Carter Holt Harvey.

The billionaire is benefiting from a wave of selling from funds who track market indicies. On Friday, he extended the closing date of the $3.3 billion offer until December 9 and disclosed investors holding more than 80 per cent of the shares had accepted.

Hart now needs acceptances from holders of less than 10 per cent of the shares before he can compulsorily acquire all outstanding stock and delist the company from the exchange.

"As every day goes by, the odds of getting to 90 per cent are going up and up," said Tower New Zealand equities manager Wayne Stechman.

CHH's shares yesterday closed at $2.50, Hart's offer price.

CHH was removed from the global benchmark index, the MSCI, yesterday. Its weighting in the NZX50 is also set to fall away sharply, under weighting adjustments made last week.

Observers estimate changes to the NZX50 will force tracking funds to sell 1 per cent to 1.5 per cent of the company's stock. CHH's weighting fell from 4.8 per cent of the index to just 2.8 per cent.

Some of those shares would have already been sold, but some tracking funds are not be able to sell until the changes take effect this Thursday.

The disposals will play into Hart's hands. Each cut to CHH's weighting in the NZX50 index forces another round of selling. Experts believe the company's weighting in the benchmark will at least halve at the end of next month.

Hart agreed to buy International Paper's 50.5 per cent stake in CHH in August, triggering a takeover offer on September 14. He can keep the offer open for up to 150 days, until early February.

Still it will not be plain sailing as those inclined to sell would have already exited. Many of those that remain will be resisting a sale.

"I still think he will struggle, but obviously there's potential for him to continue extending it as well," said James Lindsay of fund managers Tyndall Investment Management, which still holds CHH shares.

Despite CHH's disappointing performance and poor share price in recent years, many shareholders were initially reluctant to sell and sought to benefit from Hart's previous business successes, such as turning around Australian food products company Burns Philp.

However, a series of profit downgrades and a recommendation to sell by CHH's independent directors appear to have made taking the money attractive to many retail investors.

The majority of the remaining shareholders are institutions based in New Zealand, the United States, Britain and Australia, some of which are long-term holders and may hang on in the expectation Hart will turn the company around and they can share in the benefits. The balance is made up of retail investors and hedge funds.

An average of five analysts value Carter Holt at $2.80 a share on a break-up basis or a total $3.67 billion.


Tracking Shares

* August 17: Agrees to buy 50.5 per cent of CHH from International Paper of the US for $1.7 billion.

* September 15: Launches $2.50 a share bid that values CHH at $3.3 billion.

*October 14: Extends offer, the first of three extensions.

* December 9: Offer is due to close but Hart can extend until mid-February.