Godfrey Hirst threatens to quit NZ production after High Court's wool scouring decision

Thursday 24th November 2011

Godfrey Hirst NZ, New Zealand’s biggest carpet maker, says it may abandon local manufacturing after the High Court rejected its appeal against a decision to allow a group led by rival Cavalier to create a monopoly in wool scouring.

Australian-owned Godfrey Hirst said it was disappointed with the ruling and will weigh up its options over the next few days.

Judge Jillian Mallon and lay member Kerrin Vautier turned down its appeal against a Commerce Commission decision that would let Cavalier Wool Holdings to acquire scouring rival NZ Wool Services International and become the nation’s only scourer. The full decision is with counsel, and will be published once confidential information has been deleted.

“It creates a monopoly in a key sector which potentially jeopardises the longevity of the New Zealand wool industry,” general manager Tania Pauling said in a statement. “We intend reviewing the judgement over the coming days and will be considering our options going forward – including the possibility of relocating some of our manufacturing assets offshore.”

CWH, which is half-owned by carpet maker Cavalier and 25 percent apiece by Accident Compensation Corp and private equity investor Direct Capital Investments, will press ahead with negotiations to buy WSI for some $40 million, from which it would carve out the scouring assets.

The bid to create a monopoly was approved by the antitrust regulator in June, in spite of opposition from rival Godfrey Hirst, WSI’s own directors and Wool Equities. CWH successfully argued that the local industry’s biggest threat was competition from Chinese scourers.

Chief executive Nigel Hales said the monopoly will improve industry efficiency and allow it to remain competitive against foreign rivals.

“Greater scale means we can process more efficiently – at lower cost to farmers - and this is crucial to the survival of the New Zealand scouring industry as exporters have the option to bypass the New Zealand industry and export greasy wool to China,” Hales said.

”We are heartened by the level of support received from many within the industry who recognize the merger of CWH and the NZWSI scouring operations would deliver real benefits for the entire New Zealand wool industry.”

If CWH takes over the WSI, it will sell the wool trading division as a going concern.

“We will also continue to promote the concept of a coordinated ‘super store’ logistics business which through reducing transportation and storage costs will mean higher returns for wool growers,” Hales said.

In September, Wool Equities emerged as a rival bidder for WSI, and will ask its shareholders to approve a $40 million capital raising that would let it make an offer to merge the companies.

WSI’s assets are up for grabs because its two biggest shareholders, Plum Duff and Woolpak Holdings, with a combined 64 percent holding, are in receivership. Both companies have ties to the deceased Timaru businessman Allan Hubbard and failed last December.

Last week, WSI said it planned to raise fresh capital once the High Court ruled had ruled on Godfrey Hirst’s appeal. It has stridently opposed Cavalier’s bid, calling the carpet maker’s claim that such a monopoly would be the saviour of the New Zealand strong wool industry “both mischievous and misleading.”

BusinessDesk.co.nz

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