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Commission says would allow scours monopoly

Friday 10th June 2011

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Cavalier Wool Holdings says the Commerce Commission's green light for its proposed acquisition of wool scours owned by New Zealand Wool Services International (WSI) could help deliver "real benefits" for the entire wool industry.

"The merger of the wool scouring businesses is a positive step forward and is part of the structural changes that the industry requires to gain efficiencies, continuous improvement and remain competitive with our international woolscourer competitors," said Cavalier chief executive Nigel Hales.

Cavalier wants to buy WSI's wool scours and stock at Whakatu (Hawke's Bay) and Kaputone (Canterbury) and its 50% stake in the Lanolin Trading Company Ltd, according to Mr Hales, who told the commission that if the purchase went ahead, the subsequent rationalisation of the wool scours would be his eighth in 10 years.

The purchase - expected to be worth about $40 million - and rationalisation would leave Cavalier Wool as the nations only remaining wool scourer.

"The acquisition will clearly reduce competition in scouring and may lead to some price rises but the (Commerce) Act allows these losses to be outweighed by likely cost savings in the sector," said Commerce Commission chairman Dr Mark Berry.

"The commission has found that there were likely to be considerable cost savings from the rationalisation of the wool scouring industry that Cavalier Wool proposes.

"The rationalisation is 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 has said that it would re-locate Wool Services' 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.

The company has argued that though it could raise prices once it had control of the scouring sector, the risk would be a limited by the long term competitive threat of the Chinese wool scouring industry and the potential for new wool scours in New Zealand.

Cavalier chief operating officer Colin McKenzie said the wool industry in China now represented half of the world's wool imports, and China dominated world scouring with 20 times more scour lines than in New Zealand and a lower tariff price.

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 here had been a sustained decline in prices and volumes for wool exported from New Zealand over the past four decades and 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 the WSI board, whose two biggest shareholders - Plum Duff Ltd. and Woolpak Holdings with a combined 64 percent stake - have ties to Timaru businessman Allan Hubbard and are in receivership.

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



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