Australian arch-rival set to win new bid for Feltex

Australian company Godfrey Hirst is on the verge of striking a deal to rescue carpet maker Feltex, sources close to the deal say.

The move, which would create the largest carpet maker in Australasia with combined sales of $750 million, could be announced as soon as today.

The sources say that under the deal, Feltex assets would be combined with those of its longtime arch-rival.

Feltex investors would receive a cash payment for their shares, and the company would be delisted from the NZX.

ANZ Bank would recoup most, if not all, the $129 million it has lent Feltex.

This contrasts with recent suggestions that a rescue package would make Feltex shares worthless and require ANZ to convert some debt into equity.

The better outlook may reflect the presence of at least one other party interested in buying the company.

If Godfrey Hirst were the only bidder, it may have been able to persuade ANZ to let Feltex's assets be sold piecemeal.

Feltex has been at the mercy of its bank since June, when it said it expected to breach loan agreements requiring its total debt to be no less than 3.5 times its trading profits (earnings before interest, tax, depreciation and amortisation).

Its debt is $129 million - equivalent to almost 6.3 times this year's expected trading profits of about $20 million.

Godfrey Hirst and Feltex would not comment last night.

Feltex listed on the NZX in 2004 at $1.70 a share, valuing the firm at $240 million.

But the share price has plunged amid a string of profit warnings.

Last week they reached a record low of 11.2c, valuing the company at $16 million, after it said any rescue capital could push the value of the shares "significantly" below the then price of 21c.

Any deal with Godfrey Hirst will have to go over several hurdles including Feltex opening its books to the Australian company and a shareholder vote at what is sure to be a heated special general meeting.

And it will be a source of considerable embarrassment to Feltex directors, led by chairman Tim Saunders and chief executive Peter Thomas.

In February, they terminated talks with Godfrey Hirst on a merger that is understood to have been worth as much as 60c a share.

Godfrey Hirst - privately owned by New Zealander Kim McKendrick - took advantage of Feltex's sliding profits to make its first approach in June last year after paying almost $5 million for 5.83 per cent of Feltex.

It later lifted its stake to 8.72 per cent, but sold all its shares after the talks collapsed.

The Talley family is also understood to have entered negotiations for the firm, but then opted out.

The outcome of the talks is being viewed nervously by Feltex's near 900 staff in carpet-making plants in Christchurch and the lower North Island.