Another twist in Feltex yarn

Godfrey Hirst's play for ailing rival Feltex presents an interesting twist in the yarn of a New Zealand carpet pioneering family.

If the Australian carpet maker succeeds in merging with Feltex, its New Zealand owner, Kim McKendrick, will be joining forces with the company that swallowed one of his father's first carpet businesses almost four decades ago.

The late George McKendrick's Kensington Carpets - once the country's largest exporter of wool carpets - was sold to Feltex in the late 1960s.

One of George McKendrick's first carpet salesmen - who asked not to be named - suggests the sale was an aggressive power play, and that Kim McKendrick is now carrying out his father's wish to take revenge on the carpet manufacturer.

He recalls George McKendrick promising "to one day be big enough to kick their [Feltex's] arse".

Others downplay the likelihood that the potential merger is rooted in an inter-generational grudge.

A fiercely private Kim McKendrick said he was only 10 years old when Kensington was sold and he is unaware of the details, or of his father's relationship with Feltex.

A fortnight ago however, his company became the biggest shareholder in Feltex, paying almost $5 million - or 58c a share - for a close to 6 per cent stake.

Its ambition for merger talks was achieved last week, when Feltex chairman Tim Saunders met McKendrick to discuss the possibility.

Discussions are now on hold until the Feltex board meets this month.

McKendrick said yesterday he was ready to proceed as rapidly as possible - a move that would be in the best interest of both companies.

Godfrey Hirst, with annual turnover of $350 million, and Feltex, with annual turnover of $300 million, are significant wool and synthetic carpet producers on both sides of the Tasman.

Merging the two would create the largest carpet manufacturer in Australasia.

McKendrick looked at buying Feltex before its listing last year when investment bankers were looking for a trade buyer but decided the timing was wrong.

But he seized his chance late last month when Feltex's second shock profit downgrade saw its shares plunge as low as 39c, against a listing price of $1.70.

Feltex is now expecting its full-year net profit to be half the $23 million forecast at its $243 million stockmarket float last June.

Chief executive Sam Magill is set to leave at the end of the year with four senior managers he worked closely with, and the company has launched a full review of its operations to counter the drastic slump in the Australian housing market, on which it blames it woes.

McKendrick said the market softening had not hurt Godfrey Hirst to the same extent, and it had maintained profits through cost cutting.

But the industry needed rationalisation, and a merged company would have greater ability to withstand the flow of cheaper imported carpets from Asia and more opportunities to export, he said.

"The logic of combining the businesses is compelling, as significant synergies should be achievable."

Kim McKendrick took over the reins in 1999 when his father died, after starting from school as a management cadet.

Developing export markets has been one of his focuses, helping the company to be less reliant on the housing cycles in Australia.

The company employs 1400 people on both sides of the Tasman, including 600 at plants in Manukau, Christchurch, Napier and Invercargill.