Thursday, September 20, 2007

The Warehouse: The fight for control begins soon

The stoush between Foodstuffs and Woolworths Australia [WOW.ASX] over control for The Warehouse Group [WHS.NZ] is not over yet.

The Commerce Commission case to decide whether either suitor can make a bid comes up in October and both will be primed and ready to make their prospective arguments.

The recent failure of The Warehouse "extra" format, where 3 stores have been expanded to include groceries, has given more impetus for any takeover to be explored.

The main roadblock in the way of Commerce Commission approval for a takeover bid was the possibility of The Warehouse becoming a third player in the New Zealand grocery market and now that those plans have been put on hold by Warehouse management this roadblock has been somewhat lessened.

Management are going to see if they can tweak performance and costs in some way as to justify further expansion of their grocery offering but in my opinion it is only going to work once they have economy of scale and they can show customers that what they offer is the same or better than at Woolworths or Foodstuffs grocery outlets.

So it isn't crystal clear yet whether the grocery offering that The Warehouse has or will have will be a stumbling block for the Commerce Commisssion to give the green light to a takeover offer because not even The Warehouse knows exactly what the future will look like for the "extra" format stores.

The dark horse here of course is Stephen Tindall, the majority owner of the company, nobody knows what he is going to do. He made a bid last year at NZ$5.85 in conjunction with a private equity partner, for 100% of the company.

Since then we haven't heard anything from him and one could be forgiven for thinking that he has lost interest in a deal.

In my opinion though you cant discount the fact that The Warehouse is Tindall's baby and the company has been his life for almost 30 years.

A company that Tindall has nurtured and changed progressively over those decades, the move by him last year seemed to be him ready to shift The Warehouse in a new and exciting direction and I don't think he is going to give up control easily.

Retailing is in his blood.

WHS shares closed even today at $6.05 and are due a large dividend of 40.5c fully imputed due to the disposal of real estate and return of funds to shareholders.


Disclosure: I own WHS shares


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