Stakes rise in game of bluff over Feltex

Feltex directors were last night under mounting pressure to conclude a rescue package after the troubled carpetmaker's bank warned it could call in its loans and one of the potential rescuers warned it might walk away from its proposed $141.8 million takeover offer.

The threats came as small shareholders began a campaign to remove all the sitting Feltex directors - with the exception of former Deloitte chairman John Hagen - and to explore the potential to sue directors and those who floated the company in 2004 for its disastrous performance.

Starting a day of dramatic developments, Feltex's banker, ANZ - owed just under $130 million - said it reserved its rights if Feltex and suitor Godfrey Hirst did not resolve outstanding commercial issues before early yesterday morning.

The deadline came and went. Although documentation had been finalised, undisclosed matters remained outstanding as Godfrey Hirst considered "material concerns" arising from its recent examination of the business.

"Godfrey Hirst advised Feltex it is considering its position in relation to its further participation in the process and is unwilling to provide any certainty regarding its proposal at this stage," Feltex said.

Godfrey Hirst also saw no value in signing a takeover offer just now. The agreement - which would have to be disclosed to the NZX - would have only helped a rival syndicate, led by Graeme and Craig Turner of the Sleepyhead bedware group, to formulate their offer.

Feltex said it had relayed Godfrey Hirst's concerns to ANZ and promised to update the market with its response. But at press time last night no response was forthcoming and ANZ declined to comment. Godfrey Hirst also declined to comment.

Feltex's shares fell 0.1c to 11.9c, well off its 2004 float price of $1.70.

The developments will put pressure on the Turners to table their proposed rescue package. The brothers are proposing a capital injection of $35 million to $40 million in a deal that will keep Feltex listed on the NZX, but will leave the existing shareholders owning just a small portion of the company.

Last week the Turners said they expected to table their offer on or before Friday.

Craig Turner told the Business Herald last night: "We have not found anything [in due diligence] that would put us off this thing."

Shareholders and other observers dismissed the Godfrey Hirst and ANZ statements as posturing.

ANZ was anxious for a deal that would see its loan repaid in full, and Godfrey Hirst wanted to do all it could to cut the Turner brothers out of a deal.

Shareholders Association chairman Bruce Sheppard, who yesterday convened a meeting to discuss the future of Feltex, said: "Godfrey Hirst is not going to walk away, the only question is if they are going to [change] the price."

At the meeting, shareholders representing around 1 per cent of the shares also resolved to oppose the liquidation of the company and, if possible, use the proceeds from any rescue to fund legal action against directors and those who floated the company in 2004. The meeting was evenly split on whether to support the Godfrey Hirst proposal.

Directors' bonus plan

Feltex has disclosed that three sitting directors shared payments totalling more than $500,000 for their role in floating the company in 2004.

The payments were part of a bonus plan in which directors could elect to receive a mixture of cash and shares in the event of a sale or a float. Most of the payments were received in shares, now a fraction of their float value.

Under the plan chairman Tim Saunders was entitled to 707,507 shares. But he retained 500,000 shares and took a cash payment of $196,955.

Chief executive Peter Thomas, the fourth sitting director covered by the plan, was entitled to 522,940 shares. He elected to take all the shares and received no cash payment.

Feltex said the plan was agreed in 2002 but not negotiated specifically for the float. Feltex said each of the directors had acquired shares since the IPO and none had sold.