Carpetmaker to fight wool scours monopoly

Friday 10th June 2011

New Zealand's largest carpet manufacturer, Godfrey Hirst, which bought the assets of Feltex New Zealand out of receivership in 2007, says it will appeal an approval given today for the creation of a monopoly in the nation's wool scouring.

The Commerce Commission today approved plans by Cavalier Wool Holdings to buy up rival wool scours owned by Wool Services International (WSI).

"We are very concerned with the decision," said Godfrey Hirst general manager, Tania Pauling. "We have instructed our lawyers to commence the appeal process to the High Court.

"We are struggling to see how a regulatory body can allow for a monopoly in a key New Zealand industry, which will have implications not only for direct users of New Zealand scouring but also for the woolgrowers, manufacturers and end users of products, which utilise New Zealand coarse wool".

Cavalier wants to re-locate WSI's scouring plants from Kaputone (near Belfast, north of Christchurch) to Timaru and from Whakatu to Cavalier's nearby plant at Awatoto, between Napier and Hastings. Cavalier would also mothball scour lines at its own Clive and Timaru plants, and take over WSI's 50% stake in the Lanolin Trading Company Ltd.

The purchase and rationalisation would leave Cavalier Wool as the nation's only remaining wool scourer, and Cavalier chief executive Nigel Hales told the commission that if the purchase went ahead, the subsequent rationalisation of the wool scours would be his eighth in 10 years.

The merger of the wool scouring businesses "is part of the structural changes that the industry requires to gain efficiencies, continuous improvement and remain competitive with our international woolscourer competitors," he said.

The Commerce Commission has a role as an anti-trust regulator, but chairman Dr Mark Berry said though the acquisition would clearly reduce competition in scouring and might lead to some price rises, the Commerce Act allowed these losses to be outweighed by likely cost savings in the sector.

The rationalisation was likely to lead to lower production and administration costs, the freeing up of industrial sites, lower ongoing capital expenditure and improvements to wool handling.

Cavalier chief operating officer Colin McKenzie has said China's wool industry now represented half of the world's wool imports, and dominated world scouring.

He said 20% of New Zealand's greasy wool was scoured offshore along with 80% of Australian and the majority of European greasy wool, so it made sense to retaining scouring capability onshore.

But the current supply chain for greasy wool from farm to wool scour was overly complex, wasteful and costly.

Rationalisation could increase productivity and by setting up purpose-built ''independent'' greasy wool superstores adjacent to woolscours, the new business could improve efficiency - without owning or trading wool - to service existing wool brokers and private merchants.

The proposal has been opposed by directors of WSI, whose two biggest shareholders - Plum Duff Ltd. and Woolpak Holdings with a combined 64% stake - are in receivership.

Cavalier Wool is a joint venture between carpet maker Cavalier Corp, the Accident Compensation Corp, and private equity investor Direct Capital Investments.

NZPA

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