Editor Calls for Inquiry into Feltex

Auckland, NZ, August 7, 2006--Small shareholders have been burned again. Sunday Star Times business editor Tim Hunter wants the Securities Commission to investigate what went wrong at Feltex, according to Stuff.co.nz. Between May 2004 and last week more than $200 million has been destroyed. Another New Zealand company is set for delisting and overseas ownership. Small shareholders, mums and dads, again end up suffering the losses. The culprit, Feltex--the largest carpet maker in Australia and New Zealand--signed a conditional deal last week to sell its assets to rival Godfrey Hirst for $141.8m, most of which will go to pay off debts owed to ANZ Bank. Shareholders will be left with, at most, 12c a share--about $18m--for a company they bought for $243m two years earlier. How did this happen? So far we have had only mealy-mouthed platitudes from Feltex management, citing difficult market conditions, exchange rates, competition from imports--all factors that have been borne equally by its smaller rivals. Godfrey Hirst actually increased its profits and its sales during the same period. This is not good enough. Feltex was sold to the public two years ago by investment bank Credit Suisse First Boston, with the help of First NZ Capital and Forsyth Barr. Their job was to sell the company for the highest possible price. Perhaps, the subsequent collapse of Feltex was just an unfortunate accident, perhaps it was just incompetence. But most importantly investors need to know they were not hoodwinked by smart bankers into buying a business they knew was a dog. The Sunday Star-Times has therefore written to the Securities Commission asking for a full investigation into what caused the investor losses. With its powers to unearth internal correspondence at Feltex, Credit Suisse, First NZ, Forsyth Barr and ANZ, the Securities Commission can determine whether investors have been told the full, true story of how $200m was lost. In retrospect the signs were not good from the word go. When Feltex shares debuted on the sharemarket on June 4, 2004, they immediately fell 8c from the issue price of $1.70. Sharebroker Macquarie had quickly unloaded unsold stock on the market after overestimating demand from investors. In a worse position was co-lead manager First NZ Capital, whose overhang of excess stock was much larger. Executives at Godfrey Hirst, always interested in their rival, pored over the prospectus and thought it wildly optimistic. UBS, Godfrey Hirst's investment banking adviser, had the benefit of the company's knowledge and advised its clients against buying into Feltex. Institutional investors, who had, for the most part, avoided the float, appeared vindicated in their view that the $1.70 offer price was too steep. Almost all the shares went to small investors, some of whom borrowed money to buy them through Forsyth Barr's Leveraged Equities. The vendor, a unit of global banking giant Credit Suisse, had owned Feltex since 1996 after buying it for $19.4m from British conglomerate BTR. Feltex was a relatively small company then, but profitable. In the year to July 1999 it had revenue of $119m and net profit of $5.2m. The big change happened the following year when Feltex bought the Australian unit of giant American carpet maker Shaw Industries for $114m, of which $42.8m was goodwill. The deal plunged the company deeply into debt. From borrowings of $29m in 1999, Feltex added commercial bills taking its debt out to $183m. It was to be the millstone that ultimately drowned the company. A few months after Shaw offloaded its Australian business, it agreed to a takeover by legendary investor Warren Buffett's Berkshire Hathaway. -- Continued

Related Topics:Shaw Industries Group, Inc.

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