Canterbury Spinners, which lost its Christchurch factory in the February 2011 earthquake, is buying a struggling Oamaru plant in a move likely to cost more than 150 jobs.
The Godfrey Hirst subsidiary said it had a conditional agreement to buy Summit Wool Spinners, an Oamaru wool yarn producer that employs 192 people.
Australasian carpet giant Godfrey Hirst hoped the Oamaru plant would prove a cheaper replacement for the company's Bromley plant, which was badly damaged in the quakes.
Canterbury Spinners intends to keep only a skeleton staff while it takes over the company and determines whether the loss-making business can be made profitable.
Godfrey Hirst general manager Tania Pauling said the Summit plant had been on the market for two years, and it was obvious her company was the only potential buyer.
"With us buying it, there's the opportunity that it may continue in some form. If we hadn't bought it, it would probably have closed indefinitely."
She believed her company had a chance to make the plant viable because it would supply the greater Godfrey Hirst operation, shielding it from the full effect of the New Zealand dollar, which was "hammering" Summit.
Summit, owned by Japanese conglomerate Sumitomo, sold its yarn overseas to customers who were being battered by high exchange rates, as well as a greater supply of competing synthetic carpets, Pauling said.
Summit managing director Harry Ogawa said the business had become isolated from Sumitomo's textile business, and demand for wool yarn had fallen.
The company laid off 50 staff last June.
Pauling expected the sale to go through in early March, subject to Summit's redundancy consultation with its staff and further due diligence by Canterbury Spinners.
The Overseas Investment Office approved the purchase just before Christmas. The sale price was confidential.
The Oamaru plant would replace the Bromley plant, which closed in 2011 with the loss of 195 jobs.
Building a new plant would be "hugely expensive" and difficult, Pauling said.
Engineering, Printing and Manufacturing Union organiser John Gardner said Summit was a good employer, and it had been forced to lay off staff because of the Government's "refusal to act" over the high-valued kiwi.
"Summit is the second-largest employer in Oamaru and has been a part of the town for 130 years," he said.
"These redundancies are devastating for staff and for the whole community of Oamaru, which relies so heavily on these jobs."
- © Fairfax NZ News