Godfrey Hirst ends fight to overturn approval of wool scour monopoly

Friday 2nd December 2016

Godfrey Hirst says it will abandon its fight to overturn the regulatory approval for a wool scouring monopoly in New Zealand involving NZX-listed rival Cavalier, despite judging it a "major blow to the wool industry and competition generally in New Zealand".

The Australian-owned carpet maker this week lost a bid to overturn plans to consolidate ownership of New Zealand's remaining scouring plants when the Court of Appeal dismissed its appeal against earlier decisions by the Commerce Commission and the High Court to allow the merger of the wool scouring operations of New Zealand Wool Services International and Cavalier’s 50%-owned Cavalier Wool Holdings.

Godfrey Hirst said the commission's original approval was "questionable" but the company would discontinue its fight. While it could have challenged the Court of Appeal ruling in the Supreme Court, it said in a statement that New Zealand's courts "so far have been willing to endorse the regulator's seeming lack of concern at allowing a monopoly to occur in a key primary industry where much of the so-called public benefits will flow to offshore Chinese owners and most of the detriments will be felt by New Zealand farmers."

"This is a major blow to the wool industry and to competition generally in New Zealand," it said.

The regulator had allowed the merger of the nation's wool scouring plants, creating a monopoly in the supply of wool scouring services and the supply of wool grease on the trade-off that there was a broader public benefit in fending off competition from cheaper foreign rivals, such as scourers in China.

Under the plan, the merged business will be 55 percent owned by Cavalier, private equity firm Direct Capital and the government's Accident Compensation Corp, with WSI parent Lempriere taking a 45 percent stake. Cavalier chief executive Paul Alston said the shareholders need to touch base again but are "still as committed now as we were two years ago".

"We always thought this was going to be approved and I think this has been an expensive and fruitless court case, really," he said. With no further appeals coming, "we can concentate on getting the benefits and synergies out of what has been a dying industry," he said of the scouring sector.

Cavalier shares fell 2.4 percent to 80 cents and have gained 34 percent this year. At the start of November, the Auckland-based company said 2017 earnings could fall as much as 52 percent as the carpet maker incurs one-time costs to consolidate its manufacturing operations.

BusinessDesk.co.nz

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