Wednesday, January 30, 2008

Warehouse Appeal: From stuff.co.nz

Warehouse sale delay costing shareholders and public

By NICK CHURCHOUSE - The Dominion Post | Wednesday, 30 January 2008


Woolworths says every month the Commerce Commission holds up a prospective purchase of The Warehouse is costing shareholders in the red sheds $5 million.

The High Court in Wellington heard the commission's argument for leave to appeal against a November High Court decision that overturned its ruling stopping Woolworths and Foodstuffs - New Zealand's two main supermarket companies - bidding.

Commission lawyer Stephen Kos QC told Justice Jillian Mallon the commission had a public responsibility to appeal if it thought a takeover would bring substantial lessening of competition in the supermarket industry.

The case relates to The Warehouse Group's foray into the supermarket game with its Warehouse Extra stores.

Mr Kos cited examples from Australia and Britain where competition regulators had questioned the competitive practices of supermarkets, saying the industry was a matter of concern worldwide - and in countries with more competition than New Zealand.

"The commission clearly has a responsibility to represent the public interest for the benefit of consumers," Mr Kos said.

But Woolworths lawyer David Goddard QC said the commission was doing the opposite. With every month a takeover bid did not eventuate, shareholders and the general public were out of pocket.

Mr Goddard estimated each Warehouse share would earn a $2 premium on face value from a hypothetical Woolworths buy-out, and with 300 million shares that meant they were missing out on $600 million.

Adding interest earnings to the guesswork numbers, he said every month without an offer on The Warehouse was $5 million lost.

Warehouse shares closed down 3 cents at $5.70 last night.

The delay, more than a year since the commission first blocked takeover moves, also left Warehouse employees in limbo and robbed consumers of benefiting from synergies and savings through adding The Warehouse to the Woolworths stable, Mr Goddard said.

Mr Kos, also seeking a stay on attempted acquisition by the supermarket companies till the matter could be heard in the Court of Appeal, said they could not expect the commission not to appeal because of commercial inconvenience.

"Unless [Woolworths and Foodstuffs] can show the commission is doomed to failure then there is an appeal to be heard."

He said the case was arguable and the stakes were significant so they should be allowed to appeal.

Foodstuffs and Warehouse lawyers also opposed the commission's applications.

Warehouse counsel Matthew Dunning said the "Damocles' sword" the commission had was creating uncertainty for The Warehouse.

Justice Mallon reserved her decision.

Disclosure: I own WHS shares

Essential related Share Investor reading

Commerce Commission impacts on the Warehouse bottom line

The Warehouse in play
Outcomes of Commerce Commission decision
The fight for control begins soon

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