New Zealand-The Wool trade

At least $2 million would need to be kept in Wool Equities Ltd (WEL) for the Wool Advancement Group (WAG) of shareholders to be interested in taking it on to invest in commercial businesses.
WAG executive Michael Mellon said everything hinges on how much the WEL directors pay out in a likely share buy-back if the conditional sale of the company’s only business, Keratech, is sold to Texas company Keraplast, as expected in June or July.
After six years or trying, and facing ongoing cash burn, WEL’s directors have given up hope of short term commercial success with Keratech. If the sale goes ahead at around the agreed $US800,000 figure, WEL will emerge as a cash shell with $3.5 million to $4m in the bank.
Chairman Andy Pearce said a return of capital through a pro-rata share buy-back is one of the options being considered for the company. He told The New Zealand Farmers Weekly that this could be a complete or partial buy-back, depending on shareholder approval.
Mellon and WAG chairman Cliff Heath have been in confidential talks with WEL’s directors and were due to report back to their members on Friday. Mellon said there were differing views within WAG on how the group should deal with WEL. “We have demanded that at least $2m remain in the company, otherwise we would not be interested in spending our time on it.’’
Pearce said the directors had decided it was better to sell Keratech at the price offered rather than carry on for another year or two and then finding out it would take another year or more for it to become cash positive.
An offer had been made by Keraplast, which like Keratech had built up significant intellectual property relating to the keratin wool protein. The two parties had been in earlier talks on a joint venture agreement which ended in Keraplast taking over Keratech’s biomedical work in return for royalty payments if the assets were commercialised.
Pearce said having to sell the business was a very disappointing outcome to a venture in which shareholders and directors had hopes of making a substantial amount of money.
“Biotechnology is a high risk area, with a significant probability that you won’t get a return, but if you don’t invest then you can’t have the potential upside.’’
Dan Jex-Blake, a Gisborne farmer who became one of the bigger shareholders in the hope of a good return from Keratech, said he was bitterly disappointed. “I thought it had legs and I still believe it has value, but it was caught out by circumstances which meant commercial opportunities were stymied.’’
He does not support WAG’s wish to use WEL for commercial wool businesses, saying this would best be carried out by industry involvement in the Wool Partners International concept.
Bill Kermode, of the BioPacificVentures group which, through Karios Holdings, owns about 16% of WEL, did not return calls on the WEL situation, and nor did the company’s former chief executive Mark O’Grady who resigned from the company when he linked up with Karios.
Karios has lost the greater part of its investment, and Michael Mellon said its board representatives would be keen for as high a buy-back payout as possible to recoup losses.
WEL’s chief finance officer James West, the fifth biggest shareholder, said the directors and management had had six years to create commercial value. The company might have $2m to $3m in revenue a year in two to three years’ time but that would not be enough to sustain the business, and there were risks around those figures.
West has a farming background and said he had an open mind about working with WAG, though there was no guarantee the group “will pick up and run with it’’.
Board changes appear certain when Keratech is sold. West said the present directors do not have the skill-set to run a wool-based company.

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Source:www.farminguk.com