Warehouse Sale Stalled Again

Sydney Morning Herald

Friday February 1, 2008

Vanda Carson

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

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

The commission won the right to appeal an earlier court decision that had cleared the way for the takeover battle to begin. The case is now to be heard late this month or in April.

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

The purchase would help Woolworths to increase profit margins by cutting costs through economies of scale. Its buying power would be strengthened because wholesalers would be selling not only to the Big W chain and the Dick Smith Electronics stores but also 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 NZ Woolworths brands in 2005.

Mr Luscombe, who has hired Credit Suisse to advise on the deal, this week expressed his frustration with regulatory and legal holdups.

"Frustrated is probably an apt adjective," he told New Zealand's Dominion Post.

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 per cent 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, but that was reversed by the New Zealand High Court in November.

Both Woolworths and Foodstuffs have been barred from buying shares in the company until the end of this month. The delay comes as household spending in New Zealand is under pressure and follows falling sales growth at the retailer.

Shares in The Warehouse yesterday fell 85c to $4.65. Woolworths also closed down, by 70c, at $28.80.

© 2008 Sydney Morning Herald

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