Cash Burns A Hole In Woolies' Wallet After Nz Ruling

The Age

Friday February 1, 2008

Vanda Carson, Sydney

RETAIL giant Woolworths may be cashed up and hungry for acquisitions to aid its expansion across the Tasman, but it faces another long wait before it can bid for Kiwi retailer The Warehouse.

New Zealand's competition authority yesterday succeeded in stalling Woolworths and fellow suitor Foodstuffs in the latest instalment of a legal tussle over whether the general merchandise chain could be sold to competitors.

The authority won the right to appeal against an earlier court decision that had cleared the way for the takeover battle to begin.

The case is now set to be heard in late February or April.

The deal is being closely watched by Australian retailers as it is set to be the first billion-dollar transaction for Woolworths chief executive Michael Luscombe since he took over from Roger Corbett in 2006.

The purchase would help Woolworths increase profit margins by cutting costs through economies of scale.

Its buying power would be strengthened because wholesalers would not only be selling to the company's Big W and Dick Smith Electronics stores but to The Warehouse's 85 general-purpose stores and 43 stationery stores in New Zealand.

Woolworths also owns supermarkets in New Zealand, having bought the Foodtown, Countdown and Woolworths brands in 2005.

Mr Luscombe, who has hired Credit Suisse to advise on the deal, this week expressed his frustration at the regulatory and legal hold-ups.

"Frustrated is probably an apt adjective," he said.

The retailer has $800 million in net cash on its balance sheet, which could be put towards the estimated $2 billion price tag.

Woolworths and Foodstuffs each took 10% stakes in The Warehouse in 2006 and both applied for regulatory approval to make takeover offers.

The commission turned them down, saying The Warehouse should be shielded from takeover because it was a vital "third maverick player" in the industry, only for this to be reversed by the High Court in November.

Woolworths and Foodstuffs have been banned from buying shares in the company until the end of February.

It comes as household spending in New Zealand is under pressure and follows falling sales growth at the retailer.

Shares in The Warehouse yesterday closed down 85? to $4.65 while Woolworths closed down 70? to $28.80.

© 2008 The Age

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