Feltex shareholders not sold yet on Godfrey Hirst offer

Feltex Carpets shareholders have bought a couple of months before they must decide whether to accept the takeover offer from Australian rival Godfrey Hirst Carpets, according to the Shareholders' Association.

Godfrey Hirst yesterday offered a $141.8 million rescue package to buy a company which breached bank covenants in June, owing about $129 million.

That meant Feltex shareholders would get 12 cents a share at best, compared with the $1.70 per share issue price in June 2004.

Feltex shares, which were suspended from trading yesterday, lost a third of their price when the sharemarket opened today, falling 4.4c to 8.6c.

Feltex chairman Tim Saunders said the board was faced with a choice of accepting the Hirst offer or putting the company into receivership because of its inability to service debt.

Shareholders would vote on it at a meeting in September -- three quarters had to vote for the deal for it to proceed.

However, Shareholders' Association chairman Bruce Sheppard told National Radio today the company's position could change between now and the scheduled meeting.

"A fair bit of water can pass under the bridge between now and September and if the business's prospects improve and the shareholders vote 'no', they have just bought another couple of months to do a deal with the bank."

Feltex's bank, ANZ, was unlikely to call in the receivers before the meeting, Mr Sheppard said.

One worker at Feltex's Riccarton plant in Christchurch said that plant's order book was in the best shape it had been in for several years.

Mr Sheppard said Hirst "must be gobsmacked at the astounding stupidity of the Feltex board", given they rejected an offer from Hirst in February reported to be at around 55 to 60 cents per share.

He said there was limited power to take action against the board for mismanagement as long as they had followed correct processes.

However, the association had complained to the Securities Commission about the Feltex prospectus at the Initial Public Offering, where a vendor controlled board was incentivised to maximise the price.

"Paying someone to produce a document to maximise the price creates a moral hazard."

Mr Sheppard said the fact that the commission had not replied was encouraging because if it does not intend investigating, it tends to reply quickly.

"The silence from the Securities Commission possibly implies they are investigating."

Managing director of ASB Securities, Tim Preston, said serious questions had to be asked why the earlier Hirst proposal was not accepted.

The latest proposal, if accepted, gave shareholders no opportunity to recovery their capital even if the company recovered its profitability, he said.

Mr Saunders said the Hirst offer could mean shareholders only receive 9 cents per share once Hirst had fully examined the company's finances.

"All of us who are shareholders are feeling very disappointed... Many will be upset to have seen their original investment reduced by so much.

"We do believe in the current circumstances that the proposal currently before us is the best option for our shareholders."

He said he was pleased the Feltex brand would be preserved and the plants would continue to work normally.

A successful takeover would create the largest carpet maker in Australasia with combined sales of over $600 million a year -- including 55 per cent of the carpet sale market in Australasia.

Feltex staff were this morning back at work, having been told that all jobs and employment contracts were being taken over by Hirst.

"They therefore have a future in these plants and I think it's a sense of optimism for them," Mr Saunders said, adding that the only person who would definitely lose his job was Feltex chief executive Peter Thomas.

Feltex employs more than 800 staff in New Zealand: 45 in Kakariki, 190 at Wellington, 85 in Feilding, 150 in Dannevirke, 170 in Christchurch, 135 in Foxton and an estimated 45 corporate staff. Hirst employs 400 in New Zealand.

Laila Harre, of the National Distribution Union, which represents about 700 of Feltex's estimated New Zealand staff, said the announcement was good news.

"It is a relief that there is an option for keeping the company functioning," Ms Harre told NZPA.

"We believe that the fundamental position of Feltex remains positive once the issue around debt and liabilities have been resolved. We see this proposal as a vote of confidence in the workforce."

Ms Harre said she could see no reason why Godfrey Hirst would not keep all its factories going in New Zealand.

However, the Engineering, Printing and Manufacturing Union (EPMU), which represents maintenance workers at Feltex, said the announcement gave staff no certainty.

"Today's announcement that the company is being bought has given them some short-term relief," EPMU national secretary Andrew Little said yesterday.

"But there is nothing in the statement from Feltex about Godfrey Hirst having a long-term commitment to manufacturing in New Zealand."

Godfrey Hirst is owned by former New Zealander Kim McKendrick, whose father's firm Kensington Carpets was swallowed by Feltex in the 1960s.

Hirst's financial director Jim Walsh said buying Feltex would give it the critical mass to become a global player.

"We're buying the business because we believe it's a very good brand and we're committed to investing in that brand and operating capacity in both Australia and New Zealand."

- NZPA