Slump unlikely to sully sale

A $30 million profit downgrade is not expected to prompt Graeme Hart to alter his bid for forestry company Carter Holt Harvey.

The 10 per cent downgrade - which CHH is blaming on weaker-than-expected pulp and timber prices - caused the company's shares to fall yesterday.

Hart's Rank Group is in the middle of a $3.3 billion bid for Carter Holt. It has agreed to buy a 50.5 per cent stake from US parent company International Paper and has launched a $2.50 market offer for the remaining shares.

Analysts said Hart was likely to have a standard clause in the deal that would allow him to reconsider after any "material adverse change". But the market consensus was that he would stick with the deal.

"The market had some concerns, which is why the share price got hit fairly sharply," said Macquarie Equities investment director Arthur Lim. "But as people went through the thought process I think the feeling was that it is unlikely" Hart would back out.

Carter Holt shares closed at $2.50 - down 3c - after dropping as low as $2.48 in early trading.

There were precedents for something like this resulting in a deal being pulled or the price being re-negotiated, Lim said. But Hart was still getting a good price and, with other potential bidders out there, he would have no reason to risk the agreement he had locked down.

"Prices for pulp and paper products are notoriously volatile," Lim said. This kind of downgrade was not particularly shocking.

"It's incidental at the moment as far as Carter Holt goes," said ASB Securities managing director Tim Preston.

And it suggested that Hart would have his work cut out to turn the company around.

"I think it was always going to be a big job for him, but then he's proved in the past he's not scared of big jobs," Preston said.

Hart would value the company based on what the assets were worth if they were performing properly.

There was potentially some upside for Hart in that the downgrade might lower the expectation of shareholders deciding whether to sell at $2.50.

"He may well now get greater acceptances. I think he would be reasonably relaxed either way," Preston said.

An Australian analyst said the downgrade would have come as no surprise to Hart. He was well aware of the potential problems the company faced.

CHH chief executive Peter Springford said Hart would have learned of the downgrade yesterday morning along with everyone else. But he acknowledged that it was unlikely to have been surprising. Most analysts already had lower profit forecasts in place and were aware of volatile trends in pulp markets.

Hart declined to comment.

- additional reporting, Adam Bennett