Feltex Directors May Face Legal Action

Wellington, NZ, August 2, 2006--Some of Feltex's larger shareholders may take legal action against directors in the wake of the carpet maker's all but forced take-up of Australian rival Godfrey Hirst's rescue package. And carpet industry sources say the axe may fall on at least one Feltex plant in New Zealand, with the likely loss of dozens of jobs, after the Godfrey Hirst takeover. It is understood some Feltex shareholders are contemplating legal action. They are seeking legal opinions and question whether Feltex directors acted in the interests of shareholders when spurning a reverse takeover proposal from Godfrey Hirst last October. The shareholders are frustrated there has been no action from the Securities Commission over Feltex's prospectus disclosure, and are considering establishing a "fighting fund". Feltex's prospectus for the June 2004 float projected 2005 profit of $23.9 million. The company delivered $11.8 million. It then lost $11.8 million in the first half of 2006. ASB Securities managing director Tim Preston said yesterday Feltex shareholders, including those who bought shares for $1.70 each in the float, faced a Hobson's choice: either vote for Godfrey Hirst's takeover offer of a maximum of 12c a share, or see the company placed in receivership. Receivership would see additional costs and an even weaker bargaining position for Feltex. "I think this (Godfrey Hirst's offer) is the best you're going to get, unfortunately," Mr Preston said. Feltex shares fell 4.1 cents, or 32 per cent, to 8.9c yesterday. AdvertisementAdvertisementMeanwhile, a leading carpet industry executive, speaking on condition of anonymity, said Godfrey Hirst would look to close or mothball at least one New Zealand mill. "There would have to be closures or there'd be no synergies," the executive said. Feltex has plants in Kakariki near Marton, Lower Hutt, Feilding, Dannevirke, Foxton and Christchurch, with about 890 New Zealand staff. Godfrey Hirst has 550 Kiwi staff at factories in Manukau City, Napier, Christchurch and Invercargill. The executive suggested Feltex's Feilding and Christchurch plants were most vulnerable. On Tuesday Godfrey Hirst offered $141.8 million for Feltex, which owes the ANZ $129 million. Shareholders will receive up to 12 cents a share. Of this, 9c depends on Feltex's profitability over the next three months with another 3c tied to expenses. John Irving, who spent $10,000 on Feltex shares shortly after the initial public offering on co-lead broker Forsyth Barr's recommendation, said it was money down the drain. "I just think the whole thing stinks," he said. He did not see a choice other than accepting Godfrey Hirst's offer. "I've lost any kind of respect for these so-called bankers who get paid for a so-called successful IPO then walk away from it. They should return their fees." Brokers, including lead brokers Forsyth Barr and First NZ Capital, were paid fees totalling $5.5 million. Shareholders Association chairman Bruce Sheppard said investors would receive less than 12c a share. Unless Feltex could gain ANZ support, Godfrey Hirst would succeed in gaining control either through its takeover offer or by buying assets from a receiver, Mr Sheppard said. Bank support might be won through the departures of chief executive Peter Thomas and chairman Tim Saunders and the appointment of Ferrier Hodgson partner Michael Stiassny as chairman, Mr Sheppard suggested. Both Mr Sheppard and Mr Preston said Feltex's directors needed to explain why they rejected Godfrey Hirst's earlier offer.