Richard Inder: Low shares leave plenty of room for redemption

Feltex chairman Tim Saunders has staked his reputation on the carpet-maker's latest restructuring proposal.

The unravelling of Feltex was swift. Between April and June it issued two profit warnings and then, a few weeks later, upgraded its forecast profits. The last revision was on one made just 10 days before Feltex's year end.

Despite Saunders' claims the board needed stability to correct the mess, there was a good case for him to step down as soon as a safe pair of hands was found.

(At the very least it would have helped to lift investor confidence.)

It would have been relatively easy to step aside. He sits on the board of some of New Zealand's largest companies: energy group Contact, Pyne Gould Corp, Calan Healthcare Properties and Solid Energy.

They are held in relatively high regard. Even the weakest of the bunch, Calan, has had a remarkable revival, its shares rising steadily since the middle of last year.

His fellow directors could have written off his adventure at Feltex as bad luck and although tarnished he could have remained in situ.

Instead, he took the risky option of trying to make good, exposing his judgment to further scrutiny.

Yesterday's plan to cut overheads, consolidate woollen yarn operations in New Zealand and reduce capacity at its woven plant in Christchurch, delivers an attractive $11 million in savings. But such a sum begs the question why it was not done earlier. That is to say, it highlights management's earlier failings.

The plan is also risky. It remains unclear whether the reorganisation damages the prospects of teaming up with rival Godfrey Hirst. Feltex knows its rival well. In such a situation, an astute board could be expected to make changes with at least an eye to merger possibilities. But on several counts the board has been found wanting.

Hirst's response will be key.

Unions on both sides of the Tasman could cause problems. The company is consulting with workers, but the extent of the cuts, especially at its plant in Melbourne, could ferment action.

Saunders himself also highlighted a risk that Feltex's yarn demands may not be able to be met from New Zealand.

Meanwhile, two of Feltex's key problems remain unanswered - the future of its synthetic carpet operations and how it will deal with a flood of cheap imports.

Nevertheless, Feltex's market value has fallen from $250 million when it floated in June last year, to $88 million now. It is unlikely its shares will recover the difference any time soon. But as the share price is languishing so low there is plenty of room for redemption.