Hart attack for AMCOR and PaperlinX

Today, Thursday 23rd Feb, will reveal how Australia’s largest packaging and paper companies – Amcor and PaperlinX – have fared with the release of their respective interim results. It could also be the day that the Kiwi Rank Group chairman Graeme Hart – fresh from a successful take-over of the $3 billion forest, fibre and packaging group Carter Holt Harvey – will decide to move in earnest and become the world’s biggest paper and packaging baron. Speculation amongst bourse types is rife for what could be the biggest take-over battle of 2006.

Amcor has been troubled since the self-inflicted scandal of price fixing in the paperboard carton market hit early last year. Although immune from ACCC prosecution (unlike Visy) because it ‘fessed up', Amcor could face private suits from big customers who were overcharged. Interim half-year results are expected to be flat, in the $192 million to $229 million nett profit range, similar to last year.

PaperlinX, which spun off from Amcor in 2000, a result of the vision of former CEO Russell Jones, may fare far worse, with net profit tipped to drop by more than half to around $47 million. Last year, an extraordinary tax gain of $77 million boosted profits but it is not available this year and PaperlinX has faced a tough trading year in the very tight margin paper market.

Both are ripe for take-over if Hart’s previous record is examined. He likes unfashionable companies doing it tough and he has a super-hero record as a turn-around merchant. In 1997, he purchased the venerable Burns Philp Company – former substantial shareholder in Edwards Dunlop – in his second trans-Tasman raid (he bought bookseller Angus & Robertson in 1993 then on-sold it). Disaster quickly struck and within weeks his $250 million investment had shrunk to $30 million and he was all but written off, with the receivers and bankers straining at the leash.

But he dug in for the long-haul, traded and negotiated his way out of trouble, sold brands such as Uncle Toby’s and today Burns Philp is sitting on top of a $2 billion pile of cash ready to pounce on suitable targets. With CHH in the bag for his NZ company Rank Group, plus his borrowing power, Hart’s war chest would put operation Desert Storm to shame. CHH’s fate was sealed on February 3rd when it announced a 77 per cent profit drop; the director’s recommendation to accept Rank’s offer for the shares it did not already own came swiftly after.

Graeme Hart has a long history in the printing, paper and related industries. His first business move as a 20-year old former panel beater, (he is just 51 now) was to buy a run-down print shop, build it up and sell. In 1990, he scored a major coup buying the privatised NZ Government Printer for a snip at NZ$28 million. The following year he bought the Whitcoull’s stationery/newsagency chain and sold it later to Blue Star, at a tidy profit. The Angus & Roberston acqusition came in 1993 followed by the somewhat edgey Burns Philp buy in 1997.

So he understands the business and has the persistence of a Jack Russell Terrier locked onto a bone. He doesn’t sit on his investments either – when he bought the under-peforming Goodman Fielder, the head office was gutted within months and new efficiencies rapidly implemented.

If Graeme Hart succeeds in acquiring Amcor and PaperlinX – it will create a $22 billion revenue global forestry-paper-packaging giant, creeping up close to the revenue of the world’s largest such firm – International Paper at around $30 billion.

But turnover is vanity and profit is sanity as the saying goes, and if Hart does get his hands on Amcor and PaperlinX, expect big changes and soon.

My call:

It’s a logical fit. Graeme Hart has the resources and ability to take over and run Amcor and PaperlinX, and turn them around. Whether the ACCC would permit an owner of CHH (which owns carton packaging companies such as Wadepack) to own Amcor as well remains moot. He’s a ‘Kiwi raider’ in the mould of Ron Brierly but with a commitment to total success that borders on obsession.

Like the Kiwi religion – rugby, the hyper-competetive claustrophobic NZ business scene breeds hyper-competitive individuals like Hart who, when they break out, find that the world is their oyster. Companies in his cross-hairs had better be ready.