Woolworths seeks bid permission for NZ's Warehouse

By NZPA

Wednesday 17th January 2007

Australian retailer Woolworths Ltd said today it had lodged an application to bid for the country's largest listed retailer, The Warehouse Group.

Woolworths said in a statement it had posted an application with the Commerce Commission to buy 100% of Warehouse.

Woolworths bought a 10% stake in the company in September.

Woolworths chief executive Michael Luscombe said the company was seeking clearance, but as yet had made no decision on whether it would make a proposal to buy the group.

Warehouse shares were up shortly after the announcement by 21 cents to $7.20, valuing the company at $2.23 billion.

Luscombe said he did not believe there would be any competition issues that would prevent Woolworths from acquiring Warehouse.

"This application allows us to continue to evaluate all options in relation to our potential entry into the general merchandise sector in New Zealand," he said.

"As part of the review required by the Commerce Commission we will provide any assistance as required."

Woolworths rival, Foodstuffs, also has 10% of The Warehouse.
There is speculation it is considering joining a consortium that includes company founder Stephen Tindall, who controls over 50% of the company, and Private Equity Partners (PEP).

The owner of New World, Pak 'n' Save and Four Square supermarkets applied to the Commerce Commission just before Christmas to buy all of The Warehouse. Like Woolworths' application, it does not mean there will be a formal bid.

Tindall said last year he was going to launch a bid for the company with PEP, but that was before Woolworths made its raid for 10% and the indicated price was well below the current price.

Tindall, family interests, and the Tindall Foundation together own 51% of the company. He is understood to be poised to make his move.

Shares in Woolworths were ahead eight cents at $A22.93 ($NZ26.11) in afternoon trading in Australia.

Analysts said a New Zealand retailing giant could be created if Tindall and Foodstuffs joined in a consortium with PEP. It would have huge buying power and could make savings in logistics.

It would also allow Tindall to stay involved with the retailer he created and move further into food in partnership with the country's most successful supermarket operator rather than in competition with it.

Foodstuffs would not have to raise money for a bid and PEP gets an investment in successful retailers.

Any bid by the consortium would start with a 60% holding and have to be higher than the $6.50 Woolworths paid for shares.

The alternative scenario is that Woolworths bids so high that Tindall and the foundation sells to them.

Analysts have said that Woolworths was the more likely winner in any bidding war because it has deeper pockets than Foodstuffs and could generate greater cost savings.

The situation is seen as complex with Tindall having to weigh options for taking cash out of the business, minority shareholder issues and assess the likelihood of bids from the blocking shareholders.

Some analysts were surprised that Foodstuffs applied to the Commerce Commission because it operates in a different market to The Warehouse so there shouldn't have been competition concerns.

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