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Warehouse stock slumps

Thursday 31st July 2008

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Shares of Warehouse Group, the biggest retailer on the NZX 50 Index, tumbled 16% after supermarket rivals Woolworths and Foodstuffs were blocked from bidding for the company.

Warehouse fell 61 cents to NZ$3.21, bringing its decline this year to 33% and valuing the company at NZ$1.19 billion. The Court of Appeal overturned a High Court ruling last year allowing the two supermarket groups to bid for Warehouse after an appeal by the Commerce Commission.

Without the prospect of a bidding war stoking the stock, investors may now focus on the prospects of dwindling profits at retailers having to cope with weak consumer demand and rising costs. Warehouse cut its profit forecast last month, saying consumer confidence and retail spending had "deteriorated markedly."

"Maybe a premium was priced in - now it's gone, profits could be suspect, like every other retailer," said Alan Moore, who helps manage about NZ$200 million at Milford Asset Management. Founder Stephen Tindall "would not be a willing seller around these levels."

Interests associated with Tindall own about half of Warehouse's stock and the company was deemed to be in play after his failed attempt to acquire the rest of the shares and take the retailer private.

Woolworths, Australia's biggest retailer, and cooperative Foodstuffs each own 10% of Warehouse and had sought to lift their stakes to head off a potential rival and provide a lower cost way to expand than developing green-field sites.

The regulator argued an acquisition would reduce competition. The Court of Appeal decision is "a victory for supermarket consumers and competition in markets," commission chairwoman Paula Rebstock said in a statement. "New Zealand consumers know that more competition is needed in the supermarket sector."

Warehouse said it won't comment until it has studied the full judgment further. It has in recent years begun offering groceries in its stores and opening so-called hypermarkets.

The Court of Appeal ordered Woolworths and Foodstuffs to pay costs to the regulator.

By Jonathan Underhill



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