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Once burned, but not shy. Graeme Hart is out raiding again, reports Mark
Todd.
In 1997 Graeme Hart sweated and fidgeted at Burns Philip's annual meeting as
the company teetered on the brink of collapse.
As shareholders ranted, he licked his lips, shifted nervously in his seat,
and mopped his brow. He may well have thought he'd lost his fortune made mainly
from the sale of a New Zealand stationery business but he never conceded it.
When one aggrieved shareholder suggested Burns Philp may as well be wound
up, Hart, a New Zealander with aspirations to take on the world, gave his now
famous reply: ``That's not what you want to happen.
``The risk you run when a receiver walks in the door of a company is that
we, the shareholders, get zero. So don't even think about it.
``What we have to do is to work our way through it and come out the other
end with those businesses intact."
Hart and Burns Philp are now well and truly through the other side. But Hart
clearly isn't finished gambling yet, for this tilt at Goodman Fielder has the
potential to bring five years' of work undone.
Goodman Fielder long has been the poisoned chalice of the corporate world.
It has destroyed executive careers and torn up shareholders' funds ever since it
was created in the 1980s by Kiwi entrepreneur Pat Goodman, the baker from
Motueka who ruled the trans-Tasman food empire like a mini-potentate.
For years, frustrated shareholders have turned the company's meetings into
an annual blood-letting, lambasting managers and executives for poor
performance.
Even before it sent the once highly regarded David Hearn packing back to the
UK with his copybook permanently blotted, Michael Nugent and Barry Weir came
under fire. While Goodman was unquestionably in better shape after Hearn had cut
costs, sold off underperforming businesses, and refocused the company on
high-margin consumer goods, when he left the shares were trading around $1.40,
having barely moved by the end of his six years of labour.
Major investors speak well of the work Tom Park is putting in to bring the
turnaround to a successful conclusion, but scepticism will linger until Goodman
produces the results its potential demands.
Also, the last thing Burns Philp wants is a bidding war of this magnitude.
The more funds it has to scrape together, the more chance there is of
shareholders being diluted further if the company needs to raise equity.
Hart clearly sees something in Goodman Fielder. He brought the idea to the
Burns Philp board, presenting it as a way the company could bolster its earnings
to make use of its accumulated tax losses.
Goodman has a lazy balance sheet and predictable and large cash flows, which
mean Burns Philp could comfortably service the borrowings it needs to buy it.
It can also use some of Goodman's lovely cash flow about $200 million a year
to start paying down its $US400 million in debt.
Hart, in an operational sense, believes Goodman isn't that far away from
realising its potential and thinks he can get it there. Drag it if he has to, as
he did with Burns Philp.
What this means also is that Burns Philp will become less a public company
and more Graeme Hart's. Both he and Tom Degnan are responsible for bringing
Burns Philp back from the brink.
But Hart, 47, now sees the chance to become a truly global player.
It's what he has always wanted. And, he thinks Burns Philp owes him for all
the grief and hard work and sleepless nights, wondering if he'd just squandered
his fortune.
``I don't think he's motivated by proving people wrong," said one analyst
yesterday. ``He's motivated to do what he wants to do."
Within a few weeks of ploughing $264 million into Burns Philp shares in
1997, Hart's investment had shrunk to just $30 million after the banks moved in
on the debt-laden food ingredients business. At the time, and for some time
afterwards, Hart was lambasted as one of the market's all-time losers.
Now his stake, after further rescue efforts to prop up the company by buying
convertible preference shares and options, is worth an estimated $900 million
to $1 billion.
And Hart's Burns Philp, once worth a paltry $150 million, is chasing the
major food group in Australia with a $2.2 billion bid almost twice Burns
Philp's fully diluted market value.
If the bid succeeds, a combined group would emerge with annual pre-tax
profits of $500 million, sales of $4.3 billion, and the status of the dominant
food group in the region and one of the biggest in the world.
Adding Hart's New Zealand Dairy Foods broadens the business again. That
latest deal is a signal that Hart is growing bolder and is now supremely
confident in the story he is selling, for investors typically don't take well to
related-party transactions.
Now, though, it's easy to imagine a more relaxed Hart, cruising the waters
of the British Virgin Islands on his $US20 million ($35 million), 49 metre motor
yacht, Ulysses. It's a far cry from those dark days of 1997 when the gossips
wondered whether he could pay for it at all.
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