Sleepyhead pair step in with bid to rescue Feltex

Two wealthy Auckland brothers are trying to put together a rescue plan for carpet-maker Feltex, rivalling a $141.8 million offer from Australia's Godfrey Hirst.

Graeme and Craig Turner - part of the dynasty behind the Sleepyhead bedding group - want to underwrite a third of a rescue rights issue for the business and keep it listed on the NZX.

They want other well-heeled investors to put up similar sums, and are talking to several institutions and other advisers.

They say Feltex needs between $35 million and $40 million to put it back on an even keel.

Craig Turner said he hated to see a famous New Zealand brand go overseas.

"What has happened to existing shareholders is awful," he said.

Feltex, which has struggled to recover from a sharp downturn at the start of last year, admitted failure on Tuesday when it agreed to sell itself to rival Godfrey Hirst and return the proceeds to shareholders.

Feltex chairman Tim Saunders said that under the Godfrey Hirst proposal, shareholders would get between 9c and 12c a share in two instalments - the first, of up to 9c, after settlement in October, and up to another 3c next year when certain warranties expired.

Feltex shares were floated at $1.70 in 2004, so the deal would give shareholders a loss of up to $240 million.

The shares closed last night down 4.1c at 8.9c.

The Turner brothers, who share a $70 million family fortune, according to the NBR Rich List, want Feltex to issue preference shares.

They would have the same rights as existing shares but would have prior ranking in a wind-up.

The issue would give existing investors the opportunity to enjoy any Feltex recovery.

The exact terms of the issue are to be determined and it requires the continued support of Feltex's bank, ANZ, which is owed $128 million.

Sleepyhead also uses ANZ as its bank.

"We are talking with ANZ. We have been with them for 40 years, they understand our business and what we can bring to the table," Turner said. But the brothers recognised they had to deliver shareholders a return greater than the 9c to 12c expected under the Godfrey Hirst proposal.

"[Godfrey Hirst's] value is terminal, our value is growth for the future."

The brothers say Feltex may be at the bottom of a trough, but it will benefit from practices employed at Sleepyhead.

"At Sleepyhead, we are a marketing business," Turner said.

"My estimate of this business is that it is a manufacturing business with a marketing business tacked on."

Sleepyhead was complementary to Feltex. It distributed carpet underlay, and many retailers who sold beds also sold carpets.

The Feltex board has yet to agree to let the Turners look over its books and operations. But it said on Tuesday it was free to consider any other offer until shareholders voted on the Godfrey Hirst proposal in September.

Godfrey Hirst gets a $1 million break fee if Feltex accepts an alternative proposal.

Feltex said last night it had no other proposal on the table but "should we receive one, we'd be obliged to look at it".

An important element of the manoeuvring for Feltex will be the response from Godfrey Hirst to the new offer.

It declined to comment last night, but it can perhaps afford to pay more because it can make big cost savings from merging Feltex's operation with its own.

Together, Feltex and Godfrey Hirst would be one of the largest transtasman carpet groups, with $750 million of sales, half the wool and synthetic carpets market in Australia and half the wool carpet market in New Zealand.

Godfrey Hirst finance director Jim Walsh said on Tuesday his company's offer was fair in light of Feltex's record of not delivering on its promises.