Tuesday, October 19, 2010

The Warehouse Group Ltd: Takeover Prospect looking good on paper

The spectre of The Warehouse Group Ltd [WHS.NZX] being taken over by either Foodstuffs or Woolworths Ltd [WOW.ASX] has been hanging over the company since the two companies each took a 10% stake in 2007.

Since I last discussed this topic back in September 2009, The Warehouse has consolidated their businesses by cutting their Extra Stores with their offering of a wide range of grocery items and managed themselves into a position where cashflow has risen to a stage where they are able to pay substantially higher dividends.

Profit and sales have remained more or less stagnant but the company is poised to increase sales should the bleak economy show signs of life.

The company is in good health.

Where are we now though in terms of a possible takeover?

Woolworths applied for leave to appeal to the Supreme Court in August 2008 after a Court of Appeal decision went against them and Foodstuffs but Woolworths withdrew its application following the announcement by The Warehouse that it was withdrawing from Extra.

Since then investors have been left in limbo and even I don't understand the reason for the Court of Appeal and subsequently the Commerce Commission making a decision that prevented either party from making a takeover bid - the existence of The Warehouse extra format stores - now being removed allows either party to make a bid.

Either way nothing has been forthcoming but with a low share-price, a better looking balance sheet, low borrowing costs for any potential bid the sentiment is looking better for either party to cast the first stone.


Disclosure: I own WHS shares in the Share Investor Portfolio


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The Warehouse Group: 2010 Interim Profit Review
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