Wool Co seeks funds to merge WSI and WEL

September 14, 2011

Wool Co seeks funds to merge WSI and WEL

Christchurch – A new farmer lead initiative is poised to reclaim the New Zealand wool industry and unite farmers behind a single transparent entity in what is being seen as a critical step to reinvigorate the sector. The newly established New Zealand Wool Investment Company Limited (Wool Co) has set out to raise $40 million in capital to buy New Zealand Wool Services International Limited (WSI). “We need one company and a simple transparent structure which farmers can be proud of, says Cliff Heath, Chairman of Wool Co. “New Zealand wool needs one strong commercial entity that can represent our product in the world market and that has an involvement at every step from the farm gate to the shop floor,” Heath says.

Cliff Heath strongly believes that competition at the scours is vital in order to maintain the processing costs charged to farmers and to ensure the future viability of New Zealand wool. “Strategic wool assets, such as the wool scours owned by WSI, could easily be lost from farmer control if we don’t act quickly,” says Heath. Wool Co is seeking to raise $40 million through an offer that will only be available to "Eligible Persons" as defined in the Securities Act 1978 and persons who otherwise fall within section 3(2)(a) of the Securities Act. A 64% shareholding in WSI is currently under the control of the receiver of Hubbard associated entities. This shareholding is on the market. Following a successful fundraising, Wool Co will look to negotiate an agreement with the receiver of the 64% shareholding in WSI under which the receivers would agree to accept a takeover offer for WSI made by Wool Co. It is intended that such agreement would then be followed by a takeover offer for WSI by Wool Co.

If the takeover offer is successful, it is then intended that WEL will, once it has raised sufficient funding to do so and obtained all approvals it requires, purchase the shareholding in WSI acquired by Wool Co – resulting in a merger, of the two publicly listed wool companies. WSI has announced an operating profit before tax for the year ending 30 June 2011 of $9.1 million, reflecting an excellent contribution from the wool export business and increased levels of commission scouring. WEL has over $300 million of tax losses that transferred after the disestablishment of the former Wool Board.

Kevin Arscott, director of WEL says “the Wool Co structure allows us to raise capital required in a timely manner and enables WEL’s tax losses to be preserved. A successful merger of WEL and WSI will minimise the amount of tax to be paid by the new combined entity in the future”. “Each dollar of tax saved is a further dollar that can be reinvested back into the wool industry which is in the best interests of the growers,” says Arscott. "New Zealand farmers have traditionally received a premium for their wool in the international market due to its quality. A unified approach from New Zealand wool growers will help ensure that the premium New Zealand wool has earned is maintained,” says Heath. “Fonterra have shown what is possible when farmers are unified in the international markets. It is time for wool growers to follow the way,” Heath says.

ENDS

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