Feltex Carpets was touted as having excellent investment features when the carpet-maker was taken public in 2004 but its prospectus failed to disclose risks that contributed to its collapse just two years later, a shareholder suit alleges.
Eric Houghton is suing the former Feltex directors, owners and sale managers in a representative action on behalf of 3,639 former shareholders who say they were misled by the prospectus. The action began in the Wellington High Court today. The suit seeks $185 million including interest, Houghton's lawyer Austin Forbes told the court.
Houghton bought 11,755 Feltex shares at $1.70 apiece, or $20,000, in the initial public offering in May 2004, drawn to an investment that offered a gross dividend yield of 9.6 per cent. All up, vendor Credit Suisse First Boston Asian Merchant Partners raised $193 million, selling 113.5 million shares, and Feltex raised a further $50 million to repay bondholders.
Within a year the stock was virtually worthless, thanks to a series of warnings that the company would miss its prospectus forecasts, and receivers were appointed in September 2006. Australian carpet maker Godfrey Hirst ended up buying the assets.
Forbes told the court the short gap between profit downgrades and collapse was "striking" after a prospectus that had painted "a very rosy picture of Feltex." His client would not have invested had the true position of the company been known and in any case, given the state of Feltex the offer "should never have been made," he said.
