Godfrey Hirst loses bid to halt Cavalier's domination of NZ wool scouring

Godfrey Hirst has lost a bid to overturn plans backed by rival Cavalier Corp to create a monopoly in New Zealand wool scouring.

Australian-owned carpet maker Godfrey Hirst has lost a bid to overturn plans backed by rival Cavalier Corp to create a monopoly in New Zealand wool scouring.

The Court of Appeal has dismissed Godfrey Hirst's appeal against earlier decisions by the Commerce Commission and the High Court to allow the merger of the wool scouring operations of New Zealand Wool Services International and Cavalier's 50 per cent-owned Cavalier Wool Holdings.

The regulator had allowed the merger of the nation's wool scouring plants, creating a monopoly in the supply of wool scouring services and the supply of wool grease on the trade-off that there was a broader public benefit in fending off competition from cheaper foreign rivals, such as scours in China.

Cavalier, whose shares were halted pending the announcement, said it welcomed the decision, which "further supports the proposal to consolidate scouring and capture the efficiencies necessary to keep wool processing in New Zealand longer term," Cavalier said the Appeal Court ruling that could, in itself, be appealed.

Godfrey Hirst first appealed to the High Court over the regulator's decision but that was dismissed in June. It was then granted leave to take a challenge to the Court of Appeal but only on the narrow issue of whether the earlier ruling was mistaken in agreeing with the Commerce Commission's treatment of productivity gains flowing to foreign shareholders.

The merged scouring business will be 55 per cent owned by Cavalier, private equity firm Direct Capital and the government's Accident Compensation Corp, with WSI parent Lempriere taking a 45 per cent stake. In opposing the merger when it was before the commission, Godfrey Hirst had warned that prices for scouring services could jump as much as 25 per cent. But the regulator considered the biggest constraint on prices from a merged business could be scours in Asia, especially China, and cited the experience of Australia, where scouring plants dropped to three in 2009 from 25 in 1995, while volume plunged to 54,000 tonnes of greasy wool, or 14 per cent of total production, from 600,000 tonnes, or 82 pe rcent, in 1995.

Shares of Cavalier last traded at 73 cents and have gained about 20 per cent this year. At the start of November, the Auckland-based company said 2017 earnings could fall as much as 52 per cent as the carpet maker incurs one-time costs to consolidate its manufacturing operations.