Tuesday 21st October 2014
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Cavalier Wool Holdings and New Zealand Wool Services International will merge their two wool scouring operations, handing Melbourne-based Lempriere the biggest stake in the new business.
The merged scouring business will be 55 percent owned by NZX-listed Cavalier Corp, private equity firm Direct Capital and the government's Accident Compensation Corp, with WSI parent Lempriere taking a 45 percent stake, the companies said in a joint statement. Cavalier Wool Holdings is New Zealand's largest wool scouring business and the deal will see Cavalier Corp shrink its ownership from 50 percent to 27.5 percent in the scouring business.
After the merger, pending Commerce Commission approval, WSI will separate out its scouring business to become a stand-alone wool exporter as a commission customer of Cavalier Wool Holdings.
The deal comes after Lempriere poured cold water in 2012 on Cavalier's takeover aspirations for WSI's scouring assets to build a wool scouring monopoly, and insulate itself from the threat of offshore scourers, particularly those in China. The Australian wool business snagged 75 percent of WSI's shares when it acquired the majority stake owned by Allan Hubbard-related companies Woolpak Holdings and Plum Duff. Lempriere entered into lock-up agreements with some of the firm's executives to reach the mop up target of 90 percent to takeover the whole business in early 2013.
"We expect to apply to the Commerce Commission for authorisation of the transaction shortly," said Ross George, director of Cavalier Wool Holdings and managing director of Direct Capital. "There are over a hundred scouring lines operating in China alone, and this remains the key competitive restraint for the industry. The industry dynamics remains very supportive of consolidation and we have the support of NZWSI in seeking this authorisation."
In 2011, the antitrust regulator approved Cavalier's move to become a scouring monopoly, which was taken to the High Court by carpet maker Godfrey Hirst, which deeply opposed the move. The renewed application will follow the same argument as its 2011 one, Cavalier said, and it was confident the deal would be approved.
Shares of Cavalier rose 2 percent to $1.02 and have dropped some 42 percent since the start of the year.
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