New bid to stop wool merger

Some wool merchants predict big price increases.

Australian-owned Godfrey Hirst has applied for leave to appeal against a High Court decision last month that dismissed an earlier bid to block a merger of New Zealand's largest wool-scouring operations.

The Commerce Commission in November approved a plan for Cavalier Wool Holdings (CWH) to acquire New Zealand Wool Services International's wool-scouring business and assets, saying the public benefits would outweigh the substantial loss of competition.

The merger has been stayed pending the appeal by Godfrey Hirst, a rival of New Zealand-owned carpet-maker Cavalier Corp, which is one of the three shareholders in CWH.

Cavalier has said there is excess wool-scouring capacity in New Zealand and the merger proposal was about consolidating assets and realising efficiencies to keep wool processing in the country and avoid the off-shoring that had occurred in Australia.

In the High Court at Auckland yesterday, Godfrey Hirst's lawyer, John Dixon, said the company was seeking leave to argue its appeal before the Court of Appeal on three grounds including that the Commerce Commission incorrectly treated the benefits that go to foreign shareholders.

The merged scouring business will be 55 per cent owned by Cavalier, private equity firm Direct Capital and the Accident Compensation Corporation, with WSI parent Lempriere Australia taking a 45 per cent stake. Lempriere, which is majority-owned by Chinese-based textile group Shandong Ru Yi, has an option to increase its stake to 72.5 per cent by buying out ACC and Direct Capital. Dixon said if the productivity gains to foreign shareholders in the wool-scouring merger were discounted, the numbers on net benefits would not stack up.

The commission took more than a year to reach a finely balanced decision that ended up with a net benefit range of just .81 million to $23.42 million after assessing the merger's net impact over the first five years.

Dixon said another ground for leave to appeal was that the commission did not consider evidence from smaller wool merchants that the merger could lead to price increases of up to 20 per cent.

If leave to appeal is rejected, Godfrey Hirst could still seek an appeal directly from the Court of Appeal. Justice Murray Gilbert reserved his decision.

- BusinessDesk