Wool Services board holds back on Cavalier bid

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The board of Wool Services International says it won't assess yesterday's Cavalier Wool Holdings' $40 million takeover bid, saying its rival should wait until the Commerce Commission decides whether New Zealand can tolerate a wool scouring monopoly.

CWH lodged the bid last night, on the deadline set by the WSI receivers for the 64 per cent of the wool scouring and trading business owned by Plum Duff and Woolpak Holdings.

Both companies have ties to Timaru businessman Allan Hubbard, and went into receivership last December.

CWH managing director Wayne Chung told BusinessDesk the bid was for the business of WSI rather than the shareholdings.

"We could either buy the assets or the shares, but the shares is a lot less certain, so we propose to go the more certain route," said Chung.

The WSI board's decision to publicise the offer took CWH, an associate company of NZX-listed Cavalier, by surprise.

It had not intended disclosing the detail of its offer to the market because its intent was the same as had already been well-signalled, Chung said.

CWH wants WSI to merge its wool-scouring operation with its own, and would sell the wool trading business.

WSI chairman Derek Kirke said his board would evaluate the offer, but isn't in a position to adequately assess it, given a majority stake in the business is up for sale and that the commission is still deciding whether to let CWH have a monopoly position.

CWH has put in a conditional bid for all WSI's assets and liabilities.

"There is very limited detail in the offer and a significant amount of work would need to be carried out before the board could reasonably advise shareholders as to its implications and possible returns," Kirke said in a statement.

"Until the outcome of the Cavalier authorisation is known and the receiver's sales process is concluded, the board is most reluctant to spend shareholder resources on fully evaluating an offer that may not in fact be authorised to proceed," he said.

CWH indicated its desire to buy the scouring assets in February, and the antitrust regulator last month gave provisional sign-off on the monopoly going ahead.

In the commission's preliminary view, chairman Mark Berry said a wool scouring monopoly would have the potential to raise prices, but this was limited by the "ongoing, long-term competitive threat of the Chinese wool scouring industry and the potential for new entry into the New Zealand wool scouring industry."

About 21 per cent of New Zealand's wool exports are shipped to China in greasy form to be scoured there.

The country exported $669 million of wool in the 12 months ended March, according to government data.

Last year wool prices recovered from a decades-long slump as Chinese manufacturers needed more raw materials in the expectation carpet-makers will be restocking inventories this year.

WSI's shares last traded at 45 cents on May 23, giving it a market capitalisation of some $31 million. The stock has gained 4.7 per cent this year.

Cavalier Wool is a joint venture between carpet maker Cavalier, public insurer Accident Compensation's investment arm, and private equity investor Direct Capital Investments.