mergers & acquisitions 
The independent directors of Carter Holt Harvey have unanimously recommended the proposed sale to Rank Group not be accepted as it is below fair value. CHH was recently advised International Paper had entered a lock-in agreement to sell its 50.5 per cent stake in the Australasian forest products company to Rank Group for $2.50 per share. The same offer was made to existing shareholders.

The CHH Board established a committee of independent directors to act on the offer. Chairman of independent directors Kerry McDonald says they have reviewed the information and consider the offer below fair value based on several factors, including an independent advisors report by Grant Samuel and recent trading in CHH shares.

According to Grant Samuel, the valuation range is $2.55 to $2.95 per share, with a midpoint of $2.75 per share. The offer price is 9.1 per cent less than the midpoint of Grant Samuel’s valuation range and is below the bottom end of that range.

McDonald says that while the offer is above the volume weighted average price at which CHH shares have traded in the months preceding the announcement of the offer on August 17, since then the CHH share price has generally traded above the offer price.

“The Rank Takeover Notice states that the offer represents a significant premium,” says McDonald. “Based on an analysis undertaken by Cameron & Company, the premium implied by the offer is around 16 per cent after adjustments are made for the recent sale of CHH Forests, the dividend paid by CHH and the general share market improvement.”

McDonald says the independent directors were also critical of the sale process for IP’s shares in CHH. “IP’s sale process for its CHH shares was limited with a relatively short time between inviting bids and agreeing to accept an offer,” he says. “No due diligence was undertaken by Rank. A less constrained process could have been more strongly contested and produced a higher offer.”

The independent directors also believe there is significant potential to improve CHH’s performance and market conditions may also improve.

McDonald says the offer will become unconditional upon settlement with IP and Rank will become CHH’s major shareholder with a minimum shareholding of 50.5 per cent, regardless of the actions of CHH’s remaining shareholders.
He outlines three possible outcomes:

1. No or minimal acceptances other than IP’s shares. In this circumstance CHH will continue as a listed company with a free float of about 49 per cent;

2. Ninety per cent or more acceptances. In this circumstance Rank will be entitled to compulsorily acquire all outstanding shares in CHH and would then achieve 100 per cent ownership. CHH would then cease to be a listed company; or

3. Reasonable acceptances in addition to IP’s acceptance. In this circumstance CHH will continue as a listed company but its free float would be reduced. Depending on the extent of the reduction in free float, CHH’s weighting in the NZSX10, NZSX15 and NZSX50 indices could be affected, resulting in reduced institutional investor interest and research coverage. This could adversely impact on CHH’s share price.

Meanwhile, Carter Holt Harvey’s $435m sale of 94,300 hectares of forests to a consortium has gone unconditional.

The consortium is made up of Rayonier Inc and RREEF Infrastructure, the global infrastructure arm of Deutsche Asset Management.

Completion of the forest sale will take place early October.