Godfrey Hirst Rethinks Feltex Buy

Wellington, New Zealand, September 6, 2006--Godfrey Hirst yesterday said it has decided to pull back on its takeover offer for Feltex, which according to the Feltex Shareholders Association, could be a good thing in the long run. According to Stuff.co.nz, Godfrey Hirst pulled its offer, as Feltex's debt level rises and a rival offer waits in the wings. Hirst said it remained a "willing buyer" but only in an environment that was "more conducive to a successful sales process." Observers said the Australian carpet maker appeared to be waiting for the Craig and Graeme Turner-led consortium to reveal its rival offer, which is due by Friday. Association chairman Bruce Sheppard told National Radio that the move meant investors may now get nothing and it increased the odds of Feltex going into receivership. But he said the dilemma might force the bank to work with shareholders. "The problem with the bank appointing a receiver is inevitably the company will have difficulty collecting its debtors, it will have difficulty moving its stock, its brand will be in tatters and the end outcome of that is that the bank will take a haircut as well. "So they may now be on the precipice of actually having to partner with shareholders to find a better way to fix this company than selling it." Before doing due diligence, the Turner brothers said Feltex appeared to be trading profitably and had a good order book. However, Feltex's debt levels are its pressing problem, and today it announced that those levels had risen another $7 million since the end of June. Interest-bearing debt has jumped to $135 million to meet suppliers' demands for payment, and this is expected to rise to $143 million by the end of the month. The increase in debt has resulted in higher working capital levels. Some of Feltex's raw material suppliers, who were providing extended credit terms to Feltex, have reduced terms of credit, and a regular seasonal sales promotion in Australia involves extended credit terms. Hirst had offered to pay $141.8m for Feltex's carpet making operations, but the deal contained a mechanism through which the purchase price was increased or decreased according to the company's working capital position at settlement date. That meant Feltex shareholders could technically get nothing from the offer, or up to 12 cents a share. Announcing Godfrey Hirst's news, Feltex said that the Australian carpet market had "not formally withdrawn from the sales process." But it did not consider that its proposal had "a reasonable prospect of success." It was not prepared to engage in a bidding war but should circumstances change, "Godfrey Hirst would then consider the terms on which it would be prepared to move forward." Craig Turner, one of the principals of the Sleepyhead group, met yesterday with the ANZ to brief it on the Turner position. The Sleepyhead consortium wants to inject as much as $40m and keep Feltex listed on the NZX.