Hirst takes bigger share of carpet rival Feltex

Australian carpet-maker Godfrey Hirst took a bigger bite of Feltex yesterday, sparking speculation that it could be gearing up to make another takeover bid for its rival after initial attempts fell apart last year.

Hirst, Feltex's largest shareholder which proposed a merger last year, has increased its stake to 8.72 per cent from 5.78 per cent, adding 4.8 million shares to its portfolio.

Godfrey Hirst finance director Jim Walsh said former Feltex executives had offered the 2.9 million shares it bought off-market yesterday.

Another 1.9 million shares had been bought on-market at 47c over the past six months.

But Walsh said the move did not signify a forthcoming takeover bid and Hirst was still hoping to explore ways the companies could merge parts of their operations this year.

"It made sense to buy them and that's it, really. It doesn't signify any other change in our position.

""We're a long-term player in the industry and, given that the shares were available, we were prepared to take them and we'll remain open to discussions if Feltex has a mind to progress any of those discussions."

But investors took a different view and Feltex shares jumped 7c yesterday to close at 54c.

The shares were a disappointment to investors last year after plummeting from an issue price of $1.70 in June 2004 to a low of 39c following a string of profit downgrades.

Godfrey Hirst - privately owned by New Zealander Kim McKendrick - took advantage of its sliding profits and sought merger talks in June after paying almost $5 million or 58c for a 5.83 per cent Feltex stake.

But Feltex rejected the initial proposal in October, with chairman Tim Saunders calling it an effective backdoor takeover which the board could not support.

The exact details of the proposal remain confidential, although market speculation had centred on a reverse takeover of Feltex by Godfrey Hirst.

It would have become Feltex's main shareholder with a stake of more than 50 per cent, with the balance of shares remaining listed.

Feltex has since shown confidence it can heal its own wounds and restore profitability in the face of high raw material costs, the strong kiwi dollar and competition from imported synthetic carpets across the Tasman, where it makes 75 per cent of its sales.

A strategic review of the company's operations late last year resulted in the closure of a yarn plant in Melbourne and the loss of 235 jobs, which it said would save the company $15 million.

Despite rejecting the Hirst proposal, Feltex agreed to explore other opportunities to share resources or merge parts of their operations.

Yesterday, Walsh said those discussions had not made much progress.

New Feltex chief executive Peter Thomas said the company was still open to discussions.