Hirst backs away from bid to buy Feltex assets

Feltex suitor Godfrey Hirst yesterday warned that its proposed $141.8 million acquisition of the troubled carpet company's assets had no reasonable prospect of success, but the Australian company is not ruling out coming back with an alternative.

The threat to pull out - which came as Feltex confirmed a Business Herald report of a blowout in its debt from $128 million to as high as $143 million - further increases the pressure on Feltex directors to negotiate a rescue package.

They are now said to be waiting for an alternative rescue offer from a consortium led by the dynasty behind the Sleepyhead bedware company.

Feltex was caught unawares by the speed and extent of the trading downturn at the start of 2005. Since then, it has issued a string of profit warnings and breached its banking covenants. Its shares dropped 1.7c to 9.1c, a far cry from its 2004 float on the stock exchange at $1.70 apiece.

If the Sleepyhead deal falls through, directors may have no option but to put Feltex into receivership. Without competition for the assets, Godfrey Hirst may decide it can get the assets more cheaply by waiting for a receivership rather than seeking to negotiate a resolution with shareholders.

Hirst's apparently abandoned proposal - which would return shareholders a maximum of 12c a share - requires shareholder approval.

The deal included a mechanism through which the purchase price was increased or decreased according to the company's working capital position at settlement date. That meant Feltex shareholders could technically get nothing.

Hirst said it remained a "willing buyer" but only in an environment that was "more conducive to a successful sales process".

"Godfrey Hirst is not interested in getting into a bidding war for the assets of Feltex and accordingly Godfrey Hirst will not be signing formal documentation," a Feltex statement said.

The rise in debt reflects suppliers' demands for earlier payment amid fears that either Godfrey Hirst or the Sleepyhead consortium could walk away. A regular seasonal sales promotion in Australia also hurt.

The Sleepyhead-led consortium expects to put its offer for Feltex's assets to the board tomorrow. It wants to inject as much as $40 million and keep Feltex listed on the NZX.