With the $Kiwi trading below $US 42 cents, CHH's share price is only $US 73 cents

So why doesn't CHH's parent company, New York-based International Paper, buy out the minorities?

Carter Holt is International Paper's largest non-US based asset

In April 1995, when International Paper last increased its stake, it bought out Brierley for $3.55 a share and paid $3.80 a share to other shareholders to take its holding to 50.3%. In April 1995, the $Kiwi was trading between $US 65 cents and $US 68 cents

That means the CHH shares International Paper bought from Brierley cost it from $US2.32 and $US2.40 a share. The shares bought from other shareholders cost somewhere between $US2.48 and $US2.57 a share

Today CHH shares can be had for $US 73 cents

International Paper's balance sheet is looking a bit stretched right now following a string of purchases. But absorbing the rest of Carter Holt would make little difference

At 30 June, International Paper was carrying $US12.9 billion in long-term debt and total liabilities of $US20.9 billion against total assets of $US44.5 billion

Sure, the US company would have to pay a premium to the current share price, but it could probably get the rest of Carter Holt for less that $US1 billion. That's less than it paid for 25% in 1995

If International Paper offered, say, $2.50 a share, the total cost would be about $US896.8 billion at the current exchange rate

Most analysts value the shares between $2 and $2.50

CHH has improved earnings every quarter in the last seven. In its first quarter this year, net profit jumped from just $13 million in the same three months last year to $90 million

And last month, ratings agency Standard & Poor's upgraded Carter Holt's long-term debt rating to "BBB" from "BBB-." S&P said the upgrade reflected Carter Holt's more conservative debt usage, improving returns from reinvestment of asset sales proceeds, the company's moderate cost position, a high degree of vertical integration and CHH's good position in several Australasian forest product markets

Carter Holt has been virtually debt-free since late last year when it sold its Chilean assets for about $2.6 billion

One analyst says buying out the minorities with the $Kiwi this weak must look attractive to International Paper. He notes the US company's chief executive John Dillon was in New Zealand last week

But even though the numbers look compelling, most analysts don't expect any move from International Paper

"Just because you made a dumb decision five years ago doesn't mean you make a dumb decision now," says one analyst

"International Paper doesn't have to own the other half. You could argue it's smart for it not to own all of it and to have local shareholders. Forestry tends to be political," he says

Even so, Norske Skog didn't appear to have any such qualms in buying all of Fletcher Challenge's pulp and paper division for about $5 billion

Still, Carter Holt is a major landowner with about 785,000 acres of pine forests

The US company's buying spree began in November last year when it bought Union Camp in a scrip takeover worth about $US7.9 billion. Then it bought Shorewood Packaging Corp in February for $US640 million and assumed $US280 million in debt. In June it bought Champion International for $US5 billion in cash and $2.4 billion in shares and assumed $US2.3 billion in debt

Since then, International Paper has announced plans to divest about $US3 billion in assets by the end of 2001 to focus on its core business and repay debt

So, rather than International Paper's takeover target, could its stake in Carter Holt be up for sale? Analysts don't think that's being considered

But will the share price remain at its current low level? David Stanley, an analyst at Deutsche Securities, says Carter Holt, as a large exporter and with much of its assets in Australia, should be a prime beneficiary of the low currency. "I don't think that's reflected in the share price," Stanley says

Ironically, a major reason the shares are so low is because US forestry companies are languishing near 12 month-lows. International Paper, for example, was trading last week at $US31.75 compared with its 12 month-high of $US60

Weyerhaeuser has fallen from $US74.50 to $41.81and Georgia Pacific from $51.94 to $26.25

Much of that reflects the US industry's increasing cost base as the US dollar continues its relentless rise. Exactly the opposite is happening to Carter Holt

Higher US interest rates are also biting into demand for building products and an over-production of containerboard is also overhanging the US market

With Australian building approvals plummeting and domestic demand in New Zealand weak, Carter Holt is also facing a downturn in that area

Australian building approvals fell 14% in July from June to a record low and were 34.9% lower than in July last year. The monthly decline followed an 18% fall in June and a 4.3% slide in May. Much of the decline has been attributed to Australia's introduction of GST and may only be temporary, although some forecasters are predicting the market will take two years to recover

Offsetting that, log prices and demand from Asia are expected to continue their slow recovery

And pulp prices remain strong. The benchmark grade has risen from about $US430 a tonne in the depths of the Asian crisis to about $US710 a tonne

During the previous cycle, the price peaked at about $1,000 a tonne, but few expect it to reach such levels this time around. "If you look at it in euros, pulp is actually very expensive. That's putting a cap on it," says one analyst

Stanley thinks there are other factors to balance the negatives, including the company's own concentration on improving management practices and extracting better value from its assets

"We will see pretty strong earnings over the next couple of years. It will, at least, meet consensus expectations for earnings, if not exceed that," he says

But the market is asking how much of the improved earnings are cyclical and how much is sustainable. "The market's still uncertain about what the sustainable level of future earnings is and what kind of returns can be achieved on capital," Stanley says

Another analyst says the market perceives Carter Holt's almost debt-free balance sheet as a problem in itself

"People are still a bit nervous about where that money will be spent. No one really likes a paper company with too much money. It's like a rabbit with a lettuce," he says

That said, chief executive Chris Liddell is well regarded by the market and Carter Holt has a track record of successful acquisitions

Stephen Hudson, an analyst at Salomon Smith Barney, says a possible catalyst to push Carter Holt's shares closer to fair value could be the sale of Fletcher Challenge's forestry division, given that Carter Holt's forests account for about 42% of its gross balance sheet

The Fletcher division already sold proves buyers can be willing to pay way above share market prices

When the most optimistic analysts were valuing Fletcher's paper division shares at about $2, Norske Skog offered $2.50. That was an 83% premium to the share price immediately before the sale was announced and to the average market price for the previous 12 months