Contentious purchase ofwool scouring operation
Cavalier Wool Holdings says lower volumes of greasy wool entering scouring plants is only strengthening its resolve to buy a 64.3 per cent stake in Wool Services International (WSI) and take out the wool scouring business.
More wool is bypassing New Zealand’s only scouring processors for China as Cavalier attempts to create a scouring monopoly.
Cavalier has the go-ahead from the Commerce Commission to buy the assets and liabilities of WSI after the High Court dismissed an appeal from a competing carpet maker.
WSI, however, remains hopeful it can secure underwriters for a capital raising to fight the takeover and a wind-up.
The 64.3 per cent stake was in companies formerly owned by the late Allan Hubbard and an associated party and is in the hands of the receivers.
Cavalier’s plan is to consolidate its operations with the scouring facilities of WSI into Timaru and Napier, spelling the demise of the Kaputone plant in Christchurch, and sell on the trading arm.
Cavalier chief executive Nigel Hales said the increase in greasy wool being sent to China on top of a drop in wool volumes, particularly in the South Island, had made the company more determined to proceed with obtaining WSI’S scouring plants.
He said Cavalier had its finances in order for a clean bid to buy the assets and was ready to continue the negotiation phase.
‘‘It makes absolute sense to effect a rationalisation because any woolscour works is on high turnover and low margins. If we don’t have the numbers, we are less able to withstand the pressures from China. ‘‘China is a real threat.’’ Until now Cavalier says it has maintained a marginal scouring advantage over China in crossbred wool because of large volumes in New Zealand and through quality processing. Against this China has cheap labour and a 4 per cent subsidy in value added tax.
A new bid by Cavalier is likely to fall under the $40 million it presented last year for WSI. Wool volumes for scouring are nationally 14 per cent down on last year as more greasy wool goes to China for scouring.
Mr Hales said the company had not resolved whether its offer would be more or less than $40m.
‘‘The market has definitely changed and there is substantially less wool around this year. We have to take a number of these things into account.’’
Cavalier’s final legal obstacles were overcome last month, when the deadline passed for a further court appeal against their purchase proposal.
WSI chairman Derek Kirke said WSI was making every effort to go to the receivers with a capital raising fully underwritten to buy the 64.3 per cent stake.
‘‘There is strong evidence farmers oppose a wool scouring monopoly and large wool growers have indicated they will back the proposal. But to have a proposal completely underwritten we require large corporates as well.’’ The receivers have yet to indicate if a WSI bid conditional on a capital raising would be acceptable. A capital raising for the same purpose by farmer-owned Wool Equities failed last month with farmer shareholders in WSI saying they preferred to invest in a Wsi-led bid.
Higher wool prices dragged wool from storage last year and the steady decline in sheep numbers continued, although more fertiliser being spread in the hill country was encouraging, Mr Kirke said.
Pricewaterhousecoopers’ Maurice Noone, one of the receivers of Plum Duff, a Hubbard company owning 44.3 per cent of WSI, and Woolpak Holdings, an associated company owning 19.9 per cent of WSI, has said he plans to meet with the parties by the end of this month.