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

The Warehouse Group @ Share Investor

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The fight for control begins soon

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c Share Investor 2010

Woolworths supermarket consolidation an indicator of a move on The Warehouse?

Just to get my mind off problems related to our 3 week old baby girl stranded in Bangkok I thought I would have a go at discussing The Warehouse Group [WHS.NZ] and its possible connection to the strong rumour over the weekend that Progressive, owner and operator of Foodtown, Countdown and Woolworths supermarkets is going to consolidate their 3 brands into their "low-cost" brand Countdown.

Apart from the fact that I don't think it is a clever idea to ditch two great brands I think this process could be significant in the ongoing battle between Foodstuffs and Woolworths Ltd [WOW.AU] - owner of progressive - for control over the Warehouse.

I will tell you why I think this.

In trying to make things less confusing for consumers, by consolidating brands and possibly saving money on admin and other business costs, Woolworth's Oz could be ready to make their play for the red sheds.

With one supermarket brand instead of three, that leaves room for another brand, like a general merchant such as the Warehouse to fill the brand void.

It is a little bit of a leap in thought I know but it makes alot of sense from a brand and business point of view.

There have been some interesting moves by Wesfarmers Ltd [WES.ASX] in OZ lately - Woolworths Oz main competitor - they are the owner of Coles supermarkets and other brands and they are consolidating their food offers to the cheaper end of town as well.

This consolidation towards the bargain end of retailing is a global phenomenon currently, as businesses react to the economic downturn. As The Warehouse is the largest non grocery retailer in New Zealand and consistently its cheapest, as such it would be a perfect fit for Woolworth's Oz bargain priced Countdown food brand.

There are also a number of Westfield Holdings Ltd [WSF.ASX] mall sites in the country with both a Foodtown and a Countdown and presumably there would be a space left empty in some towns for a different store to take its place.

Two distinct brands covering a massive product reach under one company.

Makes sense to me.

Please keep in mind I am a WHS shareholder.

The Warehouse Group @ Share Investor

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Commerce Commission impacts on the Warehouse bottom line
The Warehouse in play
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c Share Investor 2009

When will The Warehouse bidders make their move?

The length of time that has passed between The Warehouse Group [WHS.NZ] deciding to drop their "Extra" format stores-the impediment that the Commerce Commission most recently successfully argued in the Court of Appeal was the reason the company couldn't be sold to its two current suitors-doesn't look encouraging for any positive outcome anytime soon.

Just when are they going to make a move?

In January, The Australian reported that both The Warehouse' suitors were "still considering" a purchase of the company .

There are a few reasons why Foodstuffs and Woolworths Australia [WOW.ASX] The Warehouse' two suitors, might be delaying or reconsidering a move.

1. the current uncertain economic climate might make a bid less attractive. I would argue that any bidder might be able to turn this to their advantage though by being able to bid lower.

2. capital maybe harder to obtain in order to make a bid.

3. both suitors could be waiting for a decision in the Supreme Court where Woolworths has sought leave to apply to have the Appeal Court decision quashed

4. Waiting for a response from the Commerce Commission to The Warehouse decision to dump their "extra" format stores.

5. A new proposal from founder and majority shareholder Stephen Tindall to take the business private.

The biggest impediment to a quicker sale process is The Commerce Commission's Paula Rebstock and her failure to make a ruling post the Warehouse ditching their Extra format stores in October 2008.

The Extra format stores were the main impediment, from the Commission's point of view, for denying the sale of The Warehouse and now that they have gone a positive announcement in The Warehouse favour on this matter would let the bidding process begin.


Disclosure: I own WHS shares


The Warehouse Group @ Share Investor

Long vs Short: The Warehouse Group
Warehouse bidders ready to lay money down
The Warehouse set to cut lose "extra" impediment
The Warehouse sale could hinge on "Extra" decision
The case for The Warehouse without a buyer
Foodstuffs take their foot off the gas
Woolworths seek leave to appeal to Supreme Court
Warehouse appeal decision imminent
Warehouse decision a loser for all
Warehouse Court of appeal decision in Commerce Commission's favour
MARKETWATCH: The Warehouse
The Warehouse takeover saga continues
Why did you buy that stock? [The Warehouse]
History of Warehouse takeover players suggest a long winding road
Court of Appeal delays Warehouse bid
The Warehouse set for turbulent 2008
The Warehouse Court of Appeal case lay in "Extras" hands
WHS Court of Appeal case could be dismissed next week
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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Warehouse bidders ready to lay money down

If you were reading the Share Investor Blog last Sunday you would have read my latest opinion over the long running The Warehouse [WHS.NZ] takeover saga.

I basically pointed out the news that came out today that The Warehouse have finally officially kicked their "Extra" format grocery stores into touch.

Personally I don't think The Warehouse gave the Extra format enough time and scale to succeed, at 3 years and 3 stores, though at least the cost of withdrawal will not be too cumbersome for the company and shareholders.

The focus now lay on what the two predators Foodstuffs and Woolworths Australia [WOW.ASX] will now do.

Late night meetings in both camps will be par for the course and we may see a bid next week subject to advice from legal counsel for the two companies and lawyers from the Commerce Commission.


Disclosure: I own WHS shares

The Warehouse @ Share Investor

The Warehouse set to cut lose "extra" impediment
The Warehouse sale could hinge on "Extra" decision
The case for The Warehouse without a buyer
Foodstuffs take their foot off the gas
Woolworths seek leave to appeal to Supreme Court
Warehouse appeal decision imminent
Warehouse decision a loser for all
Warehouse Court of appeal decision in Commerce Commission's favour
MARKETWATCH: The Warehouse
The Warehouse takeover saga continues
Why did you buy that stock? [The Warehouse]
History of Warehouse takeover players suggest a long winding road
Court of Appeal delays Warehouse bid
The Warehouse set for turbulent 2008
The Warehouse Court of Appeal case lay in "Extras" hands
WHS Court of Appeal case could be dismissed next week
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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The Warehouse set to cut loose "Extra" impediment

The Warehouse Group [WHS.NZ] will make a decision mid October as to whether to ditch their "Extra" format stores, the major stumbling block for a possible sale to either Woolworths Australia [WOW.ASX] or Foodstuffs. It is looking likely that Warehouse management will cut the 3 trial stores lose.

It must also be close for a decision in the Supreme Court to grant Lawyers for Woolworths a right to appeal the Court of Appeal's ruling to deny any sale of the retail giant on the grounds that the Warehouse could be "possible competition", in the supermarket sector.

I am of the opinion though, that given the removal of the impediment of the Extra format stores, the format that the Commerce Commission said would provide supermarket competition and their main opposition to the sale, that any hearing in the Supreme Court would be swift and a decision could be made quite quickly.

That is contrary to my previous view that the Supreme Court process would be drawn out and tedious but hey the rules have now changed and therefore my original scenario I can now throw in the trash.

I wouldn't be surprised if Woolworth's lawyers made a submission to the Commerce Commission based on The Warehouse sans the Extra format.

It is worth a try, has been done before, and would certainly get the bidding process going before Christmas.

On the bidding process.

Clearly given the current credit crunch, and financial market turmoil, the bids for The Warehouse are going to be lower than they would have been since US financial system almost fell over the edge-it still hangs on a slippery precipice-so shareholders may have to carefully consider any substantially lower bids least they get shafted.

Looking forward, and of course preempting any court decision, as shareholders we should look to the longer term and reject any opportunistic bid because of any weakness in the global economy or how much we might need the money.

I am picking a green light for Woolworths or Foodstuffs to buy the big red sheds.


Disclosure: I own WHS shares

The Warehouse @ Share Investor

The Warehouse sale could hinge on "Extra" decision
The case for The Warehouse without a buyer
Foodstuffs take their foot off the gas
Woolworths seek leave to appeal to Supreme Court
Warehouse appeal decision imminent
Warehouse decision a loser for all
Warehouse Court of appeal decision in Commerce Commission's favour
MARKETWATCH: The Warehouse
The Warehouse takeover saga continues
Why did you buy that stock? [The Warehouse]
History of Warehouse takeover players suggest a long winding road
Court of Appeal delays Warehouse bid
The Warehouse set for turbulent 2008
The Warehouse Court of Appeal case lay in "Extras" hands
WHS Court of Appeal case could be dismissed next week
Commerce Commission impacts on the Warehouse bottom line
The Warehouse in play
Outcomes of Commerce Commission decision
The fight for control begins soon

Related Links

Warehouse results




Audited Results for the financial year ended 27 July 2008.pdf (1MB)
Warehouse Corporate profile
2008 Interim Report
Shareinvestorforum.com -Discuss this company


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Warehouse sale could hinge on Extra decision

Today's announcement of profit (1MB PDF)at the big red sheds at The Warehouse Group [WHS] today had two significant pieces of information.

One, a good profit result-considering how other retailers like Briscoes Group [BGR] have fared recently- of $NZ90.769 million to full year July 27 2008 versus $114.834 million in 2007, a decrease of 21.0 % .

Sales were down on 2007 1.5% to $1.735 billion.

As I wrote in a column on Thursday, The Warehouse will do well in the long-term and today's announcement shows that in an extremely tough retailing environment the company has done better than most and weathered the recession well, so far anyway.

The second significant tidbit was the results of the trial of the 3 "extra" format stores:

"In relation to Warehouse Extra we have put considerable resource into refining the model and improving execution in both store operations and supply chain", Mr Morrice says. "As a result we have seen a measurable increase in customer acceptance and improved financial performance across our three Extra stores. Disappointingly however, the sales halo benefits that emerged in the first half did not maintain their momentum and have annualised well short of our expectations".

Mr Morrice said that the Extra strategy was under review. A decision regarding the future of the strategy would be made before the end of October.

Ian Morris, CEO

I'm very surprised that kiwis haven't embraced the giant "one stop" store format that has made Walmart so successful, however it appears that this style of shopping just wont fly here, or the company have the model wrong. This puts the decision made in the Appeal Court earlier this year, in The Commerce Commissions favour against Foodstuffs and Woolworths Australia buying The Warehouse, in jeopardy when it goes before The Supreme Court, probably sometime in 2009.

The Commission's case was apparently won on the basis of "potential competition" in the grocery market that the extra format stores "might provide in the future" and therefore a possible buyout of the company was nixed.

A decision to cut the format loose by The Warehouse in October would clearly remove that "potential competition" stumbling block from a Woolworths appeal to the Supreme Court and clear the way for a gobble up of the big red Kiwi retailing icon.

Short term investors should place their bets soon while the share price is low and long term investors should be hoping that there is a bidding war between the two possible suitors so their pockets are sufficiently full come bargaining time.

Either way the October decision will be eagerly awaited.

Disclosure: I own WHS shares

The Warehouse @ Share Investor

The case for The Warehouse without a buyer
Foodstuffs take their foot off the gas
Woolworths seek leave to appeal to Supreme Court
Warehouse appeal decision imminent
Warehouse decision a loser for all
Warehouse Court of appeal decision in Commerce Commission's favour
MARKETWATCH: The Warehouse
The Warehouse takeover saga continues
Why did you buy that stock? [The Warehouse]
History of Warehouse takeover players suggest a long winding road
Court of Appeal delays Warehouse bid
The Warehouse set for turbulent 2008
The Warehouse Court of Appeal case lay in "Extras" hands
WHS Court of Appeal case could be dismissed next week
Commerce Commission impacts on the Warehouse bottom line
The Warehouse in play
Outcomes of Commerce Commission decision
The fight for control begins soon

Related Links

Warehouse results




Audited Results for the financial year ended 27 July 2008.pdf (1MB)
Warehouse Corporate profile
2008 Interim Report
Shareinvestorforum.com -Discuss this company


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c Share Investor 2008

Foodstuffs take their foot off the gas

Foodstuffs Ltd, one of the two players locked neck for neck in a court bid over the last year against the Commerce Commission to allow them to make a bid for The Warehouse [WHS.NZ] say they will now drop their own appeal in the Supreme Court and leave it up to Woolworths Australia [WOW:ASX] the other player, to argue the case in the court.

Foodstuffs managing director Tony Carter has been reported as saying that Woolworths would argue a similar case, and saw no point in their joining, as they did in the Court of Appeal case that the Commerce Commission took, against a decision made in the prospective buyers favour in the High Court.

Having come this far, arguing cases in the High Court and Court of Appeal, I find it curious that Carter and Foodstuffs would now stand aside.

It just isn't in Carter's style to do the "softly, softly" approach. His company fought tooth and nail against Progressive-the former owner of part of the present Woolworths Group in New Zealand-buying the Woolworths brand to add to their Foodtown and Countdown brands a few years back.

It looks to me that Carter can see the possibility of Foodstuffs buying The Warehouse to be moving further and further away from its grasp.

"We will await with interest the outcome of the Woolworths appeal and, as we have consistently said, we would not rule anything in or anything out going forward..."

The fact that Woolworths Australia were the first party to make their bid for an appeal against the Appeal Court decision known publicly would indicate to me a more positive outlook that management have in being a successful bidder for The Warehouse.

There is no news out yet about whether the move to seek leave from the Court of Appeal to take the case to the Supreme Court is a happening thing but it is likely that leave will be given.

Given the backlog in the Supreme Court, it is unlikely that Woolworths will get a court date before Christmas and any decision, either way, will not be made until 2009. Yes 2009.

Shares in The Warehouse have prevaricated with the whims of the Courts. Vacillating in the high 6 buck range when the courts found in the possible bidders' favour, to less than NZ$3 after the decision not to allow any bids for The Warehouse from the Court of Appeal came out on August 15.

Shares closed down 3c to $3.35 today.




The Warehouse Group @ Share Investor

The Warehouse: Is it Time to Bow Out?
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Share Investor Q & A: Questions to The Warehouse' Ian Morrice
Long Term View: The Warehouse Group Ltd
Share Investor Short: Warehouse Group yield worth a look
The Warehouse Group: 2010 Interim Profit Review
The Warehouse: Big Brands, Big Opportunities
Warehouse strike opportunity to buy
Long Term Play: The Warehouse Group
Share Investor Short: Warehouse Group yield worth a second look
Woolworths supermarket consolidation an indicator of a move on the Warehouse?
Stock of the Week: The Warehouse Group
Warehouse 2009 interim profit a key economic indicator
When will The Warehouse bidders make their move?
Long vs Short: The Warehouse Group
Warehouse bidders ready to lay money down
The Warehouse set to cut lose "extra" impediment
The Warehouse sale could hinge on "Extra" decision
The case for The Warehouse without a buyer
Foodstuffs take their foot off the gas
Woolworths seek leave to appeal to Supreme Court
Warehouse appeal decision imminent
Warehouse decision a loser for all
Warehouse Court of appeal decision in Commerce Commission's favour
MARKETWATCH: The Warehouse
The Warehouse takeover saga continues
Why did you buy that stock? [The Warehouse]
History of Warehouse takeover players suggest a long winding road
Court of Appeal delays Warehouse bid
The Warehouse set for turbulent 2008
The Warehouse Court of Appeal case lay in "Extras" hands
WHS Court of Appeal case could be dismissed next week
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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c Share Investor 2008 & 2009

Woolworths to seek leave to appeal to Supreme Court

As I tipped yesterday, and the first scoop for The Share Investor Blog, the decision for either Woolworths Australia[WOW:ASX] or Foodstuffs to make an appeal to the Supreme Court to challenge the decision made in the Court of Appeal was imminent, little did I know it was going to be announced an hour ago.

Woolworths announced this afternoon that they would seek leave from the Supreme Court to appeal the decision made against them and Foodstuffs in the Appeal Court 11 working days ago.

The Commerce Commission's Paula Rebstock will be positively apoplectic with rage and will fight this hard in the Supreme Court in Wellington.

Woolworths making the announcement is significant because they appear to be the most likely winner in a all out bidding war should the Warehouse be allowed to sold.

Woollies have the deepest pockets and today they are showing how aggressive they can be by being first out of the gate to inform the market that they are going all the way.

Given the hard edged nature of their business practice across the Tasman it is my opinion that they will be the owner of the Warehouse in due course.

The Warehouse @ Share Investor


When will The Warehouse bidders make their move?
Long vs Short: The Warehouse Group
Warehouse bidders ready to lay money down
The Warehouse set to cut lose "extra" impediment
Warehouse appeal decision imminent
Warehouse decision a loser for all
Warehouse Court of appeal decision in Commerce Commission's favour
MARKETWATCH: The Warehouse
The Warehouse takeover saga continues
Why did you buy that stock? [The Warehouse]
History of Warehouse takeover players suggest a long winding road
Court of Appeal delays Warehouse bid
The Warehouse set for turbulent 2008
The Warehouse Court of Appeal case lay in "Extras" hands
WHS Court of Appeal case could be dismissed next week
Commerce Commission impacts on the Warehouse bottom line
The Warehouse in play
Outcomes of Commerce Commission decision
The fight for control begins soon

Share Investor Forum-Discuss this topic


Related Links

The Warehouse Financial Data

• Summary
• Charts
• Dividends
• News
• Announcements
• Price History
• Related Securities

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Warehouse appeal decision imminent

Since the decision by the Appeal Court to deny Foodstuffs and Woolworths Australia [WOW:ASX] the right to make a takeover for The Warehouse [WHS.NZX] we are half way along the 20 working day period for the appellants to take leave to appeal to the Supreme Court against the decision.

Investors in the company might be thinking a number of possible scenarios.


1. That no appeal will be made

2. That an appeal is taken and won or lost

3. If lost what the prospects are for the company in its current form

4. If won how much shareholders want for their shares

5. Will Stephen Tindall make another play at full private control of his company?

6. If either Foodstuffs/Woollies or the Commerce Commission lose in the Supreme Court will either seek a judicial review?


I'm guessing here but if either Foodstuffs or Woolworths was going to drop an appeal to the Supreme Court I think they would have come out already and put us all out of our collective misery. The fact that nearly ten working days have passed would indicate that lawyers from both companies, as well as The Warehouse itself, would be mulling over the Appeal Court ruling, looking for inconsistencies, mistakes and holes that they could drive a successful argument through in the Supreme Court.

I think there will be an appeal for those reasons.

At present the retail sector in New Zealand isn't looking too bright. Christmas 2008 shopping is looking dim and the prospect for a serious spending upswing isn't likely until well into 2009 in my opinion.

Never fear though!

As always with economics and the economy things do change and the retail sector will pick up and The Warehouse will be stacking up profits once again.

Where things will get really interesting is if Tindall or Foodstuffs/Woollies get control. We will likely see an expansion of the company towards larger format stores that stock more food items- a complete roll out of the "Extra" format in other words.

This is unlikely to happen under the current ownership, as the capital needed will be large and the deep pockets of an owner like Woolworths or a private partnership, along with Tindall will be able to modernise the chain with that big capital base behind them, with the ultimate benefit going to the consumer. This is where the Commerce Commission has erred in my opinion-a significant expansion of The Warehouse is only likely to happen if the company is able to be put up for sale.

The possibility that Stephen Tindall would make a play for full control is a likely one if all else fails. I don't think this can happen until after the tussle between Foodstuffs/Woollies and the Commerce Commission is resolved. It would be nice to see him own his baby outright again though. The question would then be how much would he offer to take control.

Some commentators have said Tindall wouldn't have to bid much higher than the current share price of a round $NZ3.50 per share. I think that is dreaming myself because Foodstuffs and Woolworths both have 10% holdings that cost them considerably more than that and would not accept anything less than what they paid.

Tindall would need the 20% sum of those two companies holdings to make a successful takeover and so the offer to all shareholders would have to be north of the $6.50 price that Woolworths bought their 10% for.

Woollies and Foodstuffs would clearly hold the upper hand in this position.

In the case of a competing bid for The Warehouse by Foodstuffs or Woollies should they ultimately be allowed to bid for the company, it is up to shareholders not to shortchange themselves. Tindall already owns about 53% of the company, so they need to grab his holding, the 10% either of the two bidders owns , so that would leave 27% of shareholders like myself to agree with the price the two big shareholders agree to sell for to take an offer to the 90% threshold and therefore compulsorily take the remaining 10%.

Of course everything could be left completely up in the air for another year or so, after waiting for a Supreme Court hearing, by a judicial review of a decision made in that court.

It has been done before by Foodstuffs in the case of Progressive Enterprises wanting to merge Foodtown's brands with Woolworths NZ in 2002. Woolworth's Australia then bought that merged entity in 2005.

Whatever the final outcome, investors can be sure there will be a considerable wait to get a final decision.

Disclosure: I own WHS shares



The Warehouse Group @ Share Investor

The Warehouse: Is it Time to Bow Out?
Share The Warehouse: What the Fuck is it Doing?
Share Investor Q & A: The Warehouse' Ian Morrice  
Share Investor Q & A: Questions to The Warehouse' Ian Morrice
Long Term View: The Warehouse Group Ltd
Share Investor Short: Warehouse Group yield worth a look
The Warehouse Group: 2010 Interim Profit Review
The Warehouse: Big Brands, Big Opportunities
Warehouse strike opportunity to buy
Long Term Play: The Warehouse Group
Share Investor Short: Warehouse Group yield worth a second look
Woolworths supermarket consolidation an indicator of a move on the Warehouse?
Stock of the Week: The Warehouse Group
Warehouse 2009 interim profit a key economic indicator
When will The Warehouse bidders make their move?
Long vs Short: The Warehouse Group
Warehouse bidders ready to lay money down
The Warehouse set to cut lose "extra" impediment
The Warehouse sale could hinge on "Extra" decision
The case for The Warehouse without a buyer
Foodstuffs take their foot off the gas
Woolworths seek leave to appeal to Supreme Court
Warehouse appeal decision imminent
Warehouse decision a loser for all
Warehouse Court of appeal decision in Commerce Commission's favour
MARKETWATCH: The Warehouse
The Warehouse takeover saga continues
Why did you buy that stock? [The Warehouse]
History of Warehouse takeover players suggest a long winding road
Court of Appeal delays Warehouse bid
The Warehouse set for turbulent 2008
The Warehouse Court of Appeal case lay in "Extras" hands
WHS Court of Appeal case could be dismissed next week
Commerce Commission impacts on the Warehouse bottom line
The Warehouse in play
Outcomes of Commerce Commission decision
The fight for control begins soon

Discuss WHS @ Share Investor Forum - Register free 
Download WHS company reports




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c Share Investor 2008 & 2009