Friday, November 30, 2007

The Warehouse in play

The decision by the High Court to grant a positive decision to the appellant's Woolworths Australia [WOW.ASX] Foodstuffs and itself will make the coming months for the company very interesting.

The High Court decision to allow Foodstuffs and Woolworths to make bids for The Warehouse Group [WHS.NZX] means it is just the beginning of a long process of a bidding war, possible legal wrangles by the Commerce Commission should they wish to appeal the High Court decision in the Appeal Court and difficulties for either Foodstuffs or Woollies to get the required 90% stake for a takeover.

Both Foodstuffs and Woollies own 10% of shares each and they require at least 90% of shareholder approval to make a takeover successful so both companies could block their rival bids. Considering founder Stephen Tindall has a 51% majority, it is definitely up to him and his family interests to sell or not should bids be made.

It is possible that the difficulties of gaining a 90% approval could be got around by organising a complicated "takeover" structure in the guise of a "merger", as was done when Transpacific Waste effectively took over Waste Management in 2005. Only 75% shareholder approval is needed in this scenario.

At today's AGM shareholders were told that the company had strong cashflow and he dropped hints at a capital return to shareholders.

"In the absence of any major acquisition opportunity, the company will consider undertaking further capital management initiatives in the 2008 calendar year," Chairman Keith Smith

Little was said about a possible takeover and the main focus was on company performance for next year which was expected to be flat.

The bulk of sales for the company are made during the November /December Christmas lead up and look to be flat as well, due to high mortgage rates and petrol prices.

The positive news out yesterday led Warehouse shares up around 24% and by 5c to NZ$6.20 today.


Disc: I own WHS shares in the Share Investor Portfolio


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