Cavalier gears up for new wool world

Cavalier will soon have a monopoly on the NZ wool scouring business, but says overseas competition will restrain it. Photo / Paul Taylor

Cavalier Wool Holdings (CWH), the company that has gained clearance to buy the wool scouring assets of Wool Services International (WSI), said it could comfortably fund the purchase internally but would hold off doing so until final details of a High Court decision are released.

The company welcomed this week's decision from the High Court, which dismissed an appeal by Australia-owned carpet maker Godfrey Hirst against a Commerce Commission decision authorising CWH's purchase of WSI's wool scouring assets.

Godfrey Hirst, which has factories in New Zealand, Australia and the United States, said it was weighing up its options, one of which was re-locating some of its New Zealand operations overseas.

If CWH is successful with WSI, Godfrey Hirst could end up having to buy processed wool from a company half-owned by its competitor, the New Zealand listed carpet maker Cavalier Corp.

The rest of CWH is owned by the Accident Compensation Corp and private equity investor Direct Capital Investments, which have 25 per cent each.

CWH chief executive Nigel Hales said the decision paved the way for his company to negotiate the sale and purchase of the assets, worth around $40 million.

"We are self-funded. We raise our own capital ourselves," Hales told APNZ.

"We have that all in place and we have sufficient working capital to operate the trading division of WSI for some period of time after the takeover," he said.

If successful, CWH will continue to operate as a commission wool scourer post-merger, but it plans to sell the wool trading division as a going concern.

WSI's assets were put up for sale because its two biggest shareholders, Plum Duff Ltd and Woolpak Holdings, with a combined 64 per cent holding, went into receivership. Both companies had ties to South Canterbury Finance, which went into receivership last December.

"We will not be doing anything until we have fully analysed the decision," Hales said. He then said CWH would try to initiate a process with WSI and the receivers. He acknowledged that CWH would become a monopoly in the New Zealand wool scouring industry "in name but not in practise".

He said the competitive "tipping point" for processing wool is 3 cents a kilogram, and he noted that a big percentage of New Zealand wool is already processed in China.

"If we racked our prices up, we would be in danger of seeing a lot more wool go to China unprocessed, and that would undermine what are are trying to do," he said.

CWH bought Godfrey Hirst's wool scouring operations several years ago.

Hales said CWH had undertaken seven successful scour mergers over the years and that having nation's wool scouring under one roof would help to ensure that processing remained in New Zealand.

But Godfrey Hirst general manager Tania Pauling said the High Court decision would pave the way for a monopoly in a key sector "which potentially jeopardises the longevity of the New Zealand wool industry".

The commission's decision was also opposed by WSI's own directors and Wool Equities - a company that was established out of the New Zealand Wool Board in 2003.

Shares in CWH's half owner, Cavalier Corp, closed at $2.23, up 2c.