Friday, February 1, 2008

Commerce Commission makes a meal of Warehouse takeover

The latest dance by the participants in the Warehouse takeover waltz has one of the participants grandstanding, again.

http://media.apn.co.nz/webcontent/image/jpg/ian_morrice.jpg
Ian Morrice, CEO of The Warehouse, maybe smiling but
the Commerce Commission are losing their argument
to stop the retailer from a takeover because competition
from the company's Extra format stores, on which the
commissions argument is based, are failing to provide
an alternative in the supermarket sector.



The Commerce Commission was earlier this week cleared to appeal a High Court decision allowing Woolworths and Foodstuffs to make takeover bids for The Warehouse(WHS).

Justice Mallon heard the commission's application for leave to appeal in the High Court at Wellington. The application was opposed by both of the supermarket giants and the Warehouse itself.

The Commerce Commission have wanted to drag out the whole process since they got involved way back in mid 2007. The latest attention grabber by them is trying to drag out an appeal date.

The commission had pushed to have the Court of Appeal hear any case in late April and early May.

The commission had said:

"the potential dates for a hearing, starting on February 26, were not suitable as the legal counsel it has been using would not be available at that time".

It seems incongruous to me that legal counsel would "not be available" because one would expect that commission counsel would be working hard on the case given that an appeal was imminent and they were actually preparing a case for a decision to appeal this week.

After arguing that the commission's counsel would "not be available"
commission chairwoman Paula Rebstock said:

"The commission agrees with the need for urgency and will be asking the Court of Appeal for the earliest achievable date".

So which one is it Paula!

In my opinion, counsel should have been ready to go as soon as the High Court gave their approval for an appeal.

Either the Commerce Commission don't have solid new evidence for an appeal and they are simply stalling for time in the hope that their argument can be backed up by something new they might uncover.

One of the commissions major arguments against allowing the takeover of the Warehouse by Foodstuffs and Woolworths is crumbling.

The Warehouse' "Extra Format" food/general merchandise stores, of which there are just 3, would allow new competition in the duopoly supermarket sector in New Zealand the commission argued, but since their initial ruling against a takeover in June 2007 sales figures for the stores have been below expectations and management is expected to make a decision in around a month regarding their future.

As I have said before, I don't have much faith that the commission have a good case. If they did they would have won it first time up and been ready to argue their appeal immediately.

A decent assemblage of briefs would have been ready to rock and roll ASAP and it will certainly inspire confidence in the defence given the slackness of the commission's counsel.

The Commission may be forced to fight its appeal as soon as next month, alot earlier than they expected, perhaps February 26-28.

Investors in The Warehouse have pushed up the share price from NZ$5.35 to $5.84 this week, so the sometimes savvy market doesn't believe the commission's argument either.


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
Court of Appeal case could be dismissed

Disclosure: I own Warehouse shares


C Share Investor 2008