Rival sets sights on Feltex merger

Australian carpet maker Godfrey Hirst is seeking merger talks with its ailing rival Feltex - a move that would create the largest carpet manufacturer in Australasia.

Godfrey Hirst yesterday stood in the market for 10 per cent of Feltex at 58c a share, taking advantage of investor disenchantment with the New Zealand company. By last night it had snared 5.78 per cent.

Its interest saw Feltex shares reach a high of 63c before closing at 60c, 2c above the stand offer and 9c above Monday's closing price.

Godfrey Hirst finance director Jim Walsh said that following the acquisition, the company would want to talk to the Feltex board about a merger.

"We believe a merger would have benefits for shareholders of both companies," he said.

These included a greater ability to withstand the flow of cheaper imported carpets and more opportunities to export.

However, the company had no plans to launch a takeover offer.

"There's no bid. We're simply looking to have [merger] discussions."

This would be a long, considered process, and could take anything from months to a year, he said.

"Any merger would be subject to the receipt of further information on the current financial and operating status of Feltex and also subject to any regulatory consents."

Feltex shares took a battering last week after the company revealed its second downgrade in 2 1/2 months, cancelled the final dividend, announced a review of its operations, and said chief executive Sam Magill would quit at the end the year.

It is now expecting a full-year net profit of between $11.5 million and $12 million - half the $23.9 million forecast when it floated last June.

Its shares plunged as low as 39c on the news, against a listing price of $1.70.

Feltex attributed the downgrade to a severe drop in consumer confidence and a sharp slowdown in the residential carpet market across the Tasman, where it earns 75 per cent of its revenue.

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

Walsh said Godfrey Hirst had invested more heavily in its plants in recent years, had greater synthetic extrusion and spinning capacity than Feltex, and was a more active exporter.

"With tariffs in Australia now down to 10 per cent, there's not much protection available and we think by gaining better economies of scale we might be able to compete at the low-end even better."

Feltex chairman Tim Saunders said he would meet Godfrey Hirst chairman Kim McKendrick next week and would approach a merger proposal with an open mind.

ABN Amro analyst Dennis Lee said Hirst's interest in Feltex was not a surprise. The industry needed rationalisation, but it was previously expected Feltex would lead the way.

Corporate raider Guinness Peat Group had also been rumoured to be sniffing around Feltex.

GPG director Tony Gibbs on Friday declined to comment on whether the company had its eye on the carpet maker.

- additional reporting: NZPA