Wool Equities, Primary Wool Coop agree to continue talks on potential merger

Wool Equities [NZAX: WEL], which manufactures wool for its grower shareholders, and Primary Wool Cooperative, a farmer-owned joint venture with wool broker Elders, agreed to continue to progress talks about a possible merger to boost returns after an initial meeting this week.

The boards of Wool Equities, with 9,500 farmer shareholders, and Primary Wool, owned by about 1,200 farmers, met on Wednesday to discuss the proposed unity of the two entities for the benefit of shareholders and the wider wool industry, said Wool Equities chairman Clifford Heath.

"There are enough synergies and opportunities for us to keep talking to see if we can pull the whole thing together," Heath said.

The two businesses are at opposite ends of the wool market as Primary Wool takes wool from farmers at the farm gate and onsells it, while Wool Equities buys scoured wool and converts it into yarn and garments through its spinning, weaving and knitting operations.

The wool companies are eyeing the success of Fonterra Cooperative Group which operates the full chain, buying milk from its farmer shareholders, then manufacturing and selling the processed products such as milk powder, cheese and yogurt.

Wool, once New Zealand's largest export, has lagged price gains of other agricultural commodities in recent times in the face of industry fragmentation and increased competition from cheaper synthetic rivals.

Milton, Otago-based Wool Equities operates in the finer end of the wool market for garments, using merino, mid-micron and crossbred lamb's wool and Palmerston North-based Primary Wool handles all types of wool.

Shares in Wool Equities, which trade on the stock exchange's NZAX index for smaller companies, last changed hands at 2 cents, having declined 77 percent this year.

(BusinessDesk)

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