Scours deal reveals Cavalier left millions on the table

Cavalier chairman Alan Clarke. Photo / File

Cavalier Corp, which said in August it was at risk of breaching banking covenants, is standing by the sale of its wool scouring business as the new owner offloads a 35 per cent stake at double the price.

NZX-listed Cavalier sold its 27.5 per cent shareholding in Cavalier Wool Holdings (CWH) and a half share in a property for $13.5 million to David Ferrier's Woolscour Holdings in September 2018.

State-owned Accident Compensation Corp and private equity firm Direct Capital also sold out in the deal, that was collectively worth $28m, for 70 per cent.

Now, less than 12 months later, Ferrier has onsold a 35 per cent stake to John Wylie's Tanarra Capital for $32.7m, the Herald understands.

Tanarra is partnering with Ferrier and Australia's Lempriere Wool, which recently took ownership of the wool scouring company's Hawke's Bay-based property facility for $7.5m.

Ferrier confirmed to the Herald the transaction took place last month, although he would not discuss the price due to confidentiality reasons.

"I can't discuss the figures but can confirm a transaction was done which was effectively me bringing in another party that will add additional grunt moving forward," he said after returning from Japan last week.

Cavalier chairman Alan Clarke said he was confident in the process the company went through leading up to the sale.

"We had two very experienced private equity partners in Direct Capital and ACC, both of who independently arrived at their valuation and believed that the Ferrier offer would be acceptable and they told us they would be accepting it.

"So we then did our own checking, made our own assessment, and we said that was a fair value at the time. So if he's managed to on-sell it for that, then good on him and trust it goes well for him."

At the time of the sale, Cavalier wrote down about $11.8m of its equity investment in CWH, now called New Zealand Wool Holdings. Clarke told shareholders the company recognised that it no longer needed to own a wool scour to manufacture carpets.

Scouring or washing is the first mechanical process that wool goes through, to remove grease and dirt from fleece.

Cavalier did not approach any other potential buyer to test the market price, he told the NBR last September, describing the deal as a serendipitous opportunity with an experienced investor."

On Friday Clarke told the Herald he was confident in the process.

"I think we had explored all opportunities for interested parties but Ferrier was the only one who was experienced, had the cash and could achieve settlement at a value that we thought was appropriate.

"We had an offer from someone who understood the scouring industry deeply … and that offer was tabled. We took a separate valuation, we looked at our partners and we agreed at the time that was a fair price and we sold. So if he has on-sold to someone else, I have no comment on that transaction."

Scouring or washing is the first mechanical process that wool goes through, to remove grease and dirt from fleece.

Ferrier said he has no intention of selling down his remaining 50 per cent share of the business.

"I'm very comfortable and I imagine I'll be there for quite some time to come as I'm pretty sure will be the other shareholders.

"We have a five-year plus view and will try and be as stable and as good as we can in a difficult sector. We'd like to see the price that growers are getting for their wool above the levels it is. It's almost catastrophic for them. Fortunately they are getting good prices for their meat so it's being obscured a bit."

In August, Cavalier confirmed a $16.8m net loss, including a $11.8m loss on the sale of its wool scouring business.

Conditions remained "challenging" but the board believed the company remained a going concern and could meet its contractual obligations.

"This going concern relies on future forecasts which are sensitive to sales volumes and margins and subject to material uncertainty if these forecasts are not met," the board said.

Cavalier holds about $30m of property and has bank debt of about $18m.

The company recently announced a "collaboration" with the New Zealand Merino company in an attempt to capture a consumer trend toward natural fibres and away from synthetics.