KEY POINTS:
On September 22 last year, less than 2 1/2 years after it was floated to New Zealand investors in a $254 million initial public offering, Feltex Carpets collapsed into receivership.
Some 8800 investors, many of whom had bought shares at $1.70 in the May 2004 IPO, were left with nothing but worthless scrip and a long list of questions about whether the initial prospectus had given a truthful account of the company's fortunes.
Unsecured creditors - owed $13.1 million, according to the receivers - were told to flag away any hope of recovering their losses.
Over 170 workers lost their jobs as Feltex's new owner shut factories in Christchurch and Kakariki.
The chief beneficiary of the Feltex collapse was its old rival Godfrey Hirst, which had been circling its prey for months in a series of on-again, off-again negotiations. Within a week of the receivers being called in, it had secured a deal to buy Feltex's assets.
The sale price enabled the ANZ bank, owed $135 million, to walk away with just a "small loss" on its investment, according to the receivers.
Few corporate stories have provoked as much public anger and indignation in recent years, which is why The Business undertook a major two-part investigation into the IPO and subsequent collapse - published in October and November last year.
The investigation unearthed a number of things investors could not have discerned from the glossy prospectus, including that the Feltex board had serious misgivings about the abilities of the chief executive at the time of the IPO, Sam Magill. The prospectus, instead, touted him as a skilled and experienced industry veteran.
Nor could shareholders have known that the company went into the IPO in dire need of major restructuring - restructuring that the board knew was necessary but which management had failed to carry out.
The investigation also concluded that the prospectus conveyed a highly optimistic view of Feltex's prospects, given the firm's wildly fluctuating fortunes in the years before the IPO, and the intensely volatile and competitive industry conditions it faced.
Indeed, just three years before the IPO, Feltex had nearly been sent broke by harsh trading conditions and an enormous debt burden.
Perhaps inevitably, Feltex failed to meet its first full-year profit projections after the IPO, setting in train a series of crises from which it was never able to recover. Debt levels blew out, customers lost confidence, and chief competitor Godfrey Hirst took advantage of Feltex's weakness by aggressive cost-cutting.
By mid-2006, the ANZ had lost patience with Feltex - which by then was in breach of its banking covenants - and wanted out. It saw a sale to Godfrey Hirst as the best option, and was frustrated when the Feltex board repeatedly failed to seal a deal with Hirst. Despite the emergence of a determined, credible and well-funded bid led by the Turner brothers, of Sleepyhead fame, the bank opted for receivership.
With the Feltex assets promptly sold to Godfrey Hirst and the company aptly renamed EXFTX, the Shareholders Association successfully applied to the High Court in December to have the company put into the hands of liquidators McDonald Vague, who are empowered to investigate its affairs.
However, another shareholder group, led by investment banker Tony Gavigan - who failed in a bid to have the High Court appoint him a director of Feltex - says it may appeal against the decision to appoint a liquidator.
Gavigan had wanted to implement a scheme of arrangement to take the company out of receivership, keep the shell company trading on the NZX, and seek funding from shareholders to investigate Feltex's recent history. He is also considering action under the Fair Trading Act against some brokers who promoted Feltex shares.
The Securities Commission, which last August gave the Feltex IPO a clean bill of health, is still investigating the company's continuous disclosure and financial reporting since its April 2005 profit downgrade.
