Feltex floored as potential cornerstone investor walks

Feltex chairman Tim Saunders said the company was getting its act together better. File picture / Kenny Rodger

Feltex can survive a dispute that has seen a potential cornerstone investor walk away amid disagreement about terms, says chairman Tim Saunders.

But one analyst said if a new investor could not be found it would be curtains for the carpet maker.

"I'm confident it can flourish again," Saunders said.

"It's a matter of sorting out its balance sheet [and] that's readily accepted. We've been through a hell of a lot, some of it of our own making, some of it from the market."

Saunders could not confirm the potential investor's identity, why or how it had changed its terms, or any details about the latest group of potential new investors.

"This is one of the reasons we've had difficulties in talking with the press in the last week or two," he said. "We're subject to a confidentiality agreement [and] we really just can't get into any sort of detail at all."

Last month Feltex said it had been approached by a potential cornerstone investor - named by market sources as Talley's Fisheries - in a capital-raising exercise that was fundamental to the future of the company.

"Since that date the potential investor sought to significantly revise the fundamental terms and structure of its proposal in ways which, the board believes, would have been unfair to shareholders and other stakeholders of the company," Feltex said.

The potential investor had withdrawn its proposal and Feltex said it could now hold talks with other interested parties.

Shares in Feltex fell 1c yesterday to close at 21c a share.

One analyst said it was possible that carpet rivals Godfrey Hirst or Cavalier Carpets might now try to scoop up the company.

"Given that the equity's only worth about $30 million it's not going to be too much of a stretch for anyone to come and buy it," the analyst said.

Feltex had to find a new cornerstone investor to rescue the business or "it will be curtains" for the carpet maker, he added.

Feltex said June sales for Australia and New Zealand had slightly exceeded targets, sales orders remained healthy and current and projected gross margins showed signs of improvement.

"I think it [June] reflects the fact that we are probably getting our act together better after a difficult three months at the beginning of the year," Saunders said.

Stock was not being discounted any more than normal and only redundant machinery was being considered for sale, Saunders said in response to rumours in the carpet industry.

On Monday Feltex's bank - ANZ - agreed to take no action despite the company being in breach of covenants in its bank facility agreement.

All banking facilities, including those that expired last Saturday, would continue - albeit with monthly reviews - until the end of September, while Feltex pursued restructuring and equity-raising alternatives.

Feltex's projected year-end debt position with ANZ is $110 million, or $129 million including its trade bill facility.

The extension had been agreed before the investment proposal was withdrawn but there were no conditions between the two announcements, Saunders said.

"It's an unfettered extension on the basis that we review at three months and we talk on the way through."

First NZ Capital analyst Andrew Mortimer said unless Feltex could find another investor it would have to rely on continued bank support.


CARPET BAGGING

* June 2004: Feltex Carpets floats at $1.70 a share.

* April/June 2005: Profit forecast slashed from $23.9m to between $11.5m and $12m.

* Feb 2006: Godfrey Hirst merger deal valuing shares at 60c each collapses.

* June 2006: Proposal from potential cornerstone investor.

* July 4, 2006: Potential investor walks away; share price hits 21c.