The Warehouse: The fight for control begins soon

The stoush between Foodstuffs and Woolworths Australia [WOW.ASX] over control for The Warehouse Group [WHS.NZ] is not over yet.

The Commerce Commission case to decide whether either suitor can make a bid comes up in October and both will be primed and ready to make their prospective arguments.

The recent failure of The Warehouse "extra" format, where 3 stores have been expanded to include groceries, has given more impetus for any takeover to be explored.

The main roadblock in the way of Commerce Commission approval for a takeover bid was the possibility of The Warehouse becoming a third player in the New Zealand grocery market and now that those plans have been put on hold by Warehouse management this roadblock has been somewhat lessened.

Management are going to see if they can tweak performance and costs in some way as to justify further expansion of their grocery offering but in my opinion it is only going to work once they have economy of scale and they can show customers that what they offer is the same or better than at Woolworths or Foodstuffs grocery outlets.

So it isn't crystal clear yet whether the grocery offering that The Warehouse has or will have will be a stumbling block for the Commerce Commisssion to give the green light to a takeover offer because not even The Warehouse knows exactly what the future will look like for the "extra" format stores.

The dark horse here of course is Stephen Tindall, the majority owner of the company, nobody knows what he is going to do. He made a bid last year at NZ$5.85 in conjunction with a private equity partner, for 100% of the company.

Since then we haven't heard anything from him and one could be forgiven for thinking that he has lost interest in a deal.

In my opinion though you cant discount the fact that The Warehouse is Tindall's baby and the company has been his life for almost 30 years.

A company that Tindall has nurtured and changed progressively over those decades, the move by him last year seemed to be him ready to shift The Warehouse in a new and exciting direction and I don't think he is going to give up control easily.

Retailing is in his blood.

WHS shares closed even today at $6.05 and are due a large dividend of 40.5c fully imputed due to the disposal of real estate and return of funds to shareholders.


Disclosure: I own WHS shares


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The case for The Warehouse without a buyer
Foodstuffs take their foot off the gas
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Warehouse decision a loser for all
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The fight for control begins soon

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c Share Investor 2007 & 2009

Picking up Mercury with Chopsticks

I was reminded last week of just how lax New Zealand's laws are on serious fraud and financial skulduggery.

The Serious Fraud Office charged Peter Marshall with 13 counts of false accounting and making false statements in 2005, after his company Access Brokerage collapsed in 2004 owing more than $3 million.

Through his lawyer Marshall's defence is that due to a stroke he has suffered "memory loss" and that crucial evidence is in his mind murky because of this and therefore has asked for an adjournment to his fraud trial.

Forgive me if I might sound a like a tough bastard but surely all the evidence needed is in written form and any charge prosecuted and then defence of such charges would be a simple procedure and could go ahead in the absence of Marshall's absent memory.

Time certainly isn't going to help his recollection of events become crystal clear enough for him to have any trial commence.

Justice certainly isn't going to be served as it has already been over 3 years since the collapse of his firm and further delay seems to me prolonging the inevitable.

I must say this isn't the first example of such a defence being used to delay a fraud trial and it comes on top of poor efforts by the SFO to seek justice on behalf of victims of financial fraudsters and stacked deck accounting practices and the likelihood of these sewer rats being caught and punished seems akin to trying to pick up mercury with chopsticks.

Marshall's prospective fraud trial is especially relevant considering the climate in the finance industry of late.

The recent finance industry collapses in New Zealand share a common thread.

There are many that called themselves "financial advisers" who advised kiwis, many of them elderly, to get into Bridgecorp, knowing it was about to collapse.

I know of one 75 year old who has probably lost NZ $25000.00 that was advised to "invest" in Bridgecorp not long before its fall from grace.

I call that fraud and that needs to be punished by a jail sentence. Sadly the odds are that isn't going to happen.

Trustees of several financial companies have also been culpable in my opinion. Accepting deposits from customers, while at the same time keeping the knowledge that the company is in trouble to themselves.

There is really no need for laws to be changed or the SFO amalgamated into some big new state apparatus . All that is needed is for existing fraud laws to be used, prosecuted and a big enough deterrent handed down.

Until there are deterrents for this kind of despicable behavior that can alter victims lives forever, sometimes with deadly consequence, then underhanded and fraudulent swine are simply going to continue with their criminal behavior.


C Share Investor 2007

Pumpkin Patch profits Flatten

Pumpkin Patch Ltd [PPL.NZ] the small global trendy kids clothing retailer, has announced its full year profit today and reported an annual net profit after tax down 3.2 per cent to NZ$27.6 million.

Sales revenues were up 17.9 per cent to $365.7 million for the year to the end of July.

The high $NZ exchange rate hit net profit as foreign revenue is brought back to head office, which is in New Zealand.

The network of stores increased by 35 over the last year to 200 but the expansion, especially in the US and UK markets hit the bottom line as logistical frameworks were put in place for further future expansion.

It looks likely that company profits will remain flat in the near term because of the increased costs of expansion in combination with what looks to be a kiwi dollar that will remain high.

Currently the company is suffering from high tariffs being placed on Pumpkin Patch product in the UK and the US but there has been some movement by those particular authorities to change tariff quotas. Management are hopeful.

Clearly increasing revenues from expansion will offset the increasing costs of same but the full benefit will only be seen once economies of scale can be brought to the US and UK divisions and that is going to take some considerable time in my opinion.

Micheal Hill International [MHI.NZ]is facing similar business start up problems as it establishes its jewelry chain in Canada.

It seems that once a brand enters into a new market it takes a year or two before it builds enough momentum and gets recognized and loved as it already is in Australia and New Zealand.

Australia already has 102 stores and NZ has the most per capita of the countries that it operates in, at 50.

The main growth area for Pumpkin Patch is going to be the USA. Pumpkin Patch opened its first US store in Los Angeles in 2005. Stores are predominately located on the West Coast but further sites are being sought in the Southwest.

Two stores have been opened in Texas and management have announced today that they will be moving into East Coast locations soon.

My guess is that the US has room for around 1000 stores so the company is clearly going to be a very different one in the 10 years or more that this is going to take, if the company keeps its head above water in this very tough and uncompromising market.

Short term, sales in New Zealand and Australia markets, where most of the Patch profit is earned, are likely to be dampened by a weak economy, with high interest rates, increased taxes and other living expenses having impacts on individuals non-essential spending habits.

Long-term though, if company expansion is successful, then we are likely to see an excellent returns for shareholders.

A final dividend for 2007 of 4.5c per share will be paid 17th October 2007, with a record date of 5th October 2007.

PPL shares closed up 5c today to $3.30, close to its lows for the year.

*Disclosure: I own PPL shares


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c Share Investor 2007

At least Robin Hood was Honest: Labour will buy the 2008 Election

There is no doubt that Helen Clark and the sisterhood in the New Zealand Labour Party are feeling the heat at present.

With Clark finally succumbing in the polls completely to National, if there was an election today John Key and his buddies would govern on their own. The majority of the country at present prefers Key as its leader.

Clark and co are facing a continuing slide in the economy, failing pillars of the state apparatus in health, education, policing and every other sector of government involvement in our lives are under pressure.

The only success Labour have had is increasing state dependence through record welfare recipients and bloating state employees to a level where we may see some pen pushing, clipboard carrying, pen protector wearing drones move to use up Auckland office space because Clarke and her mates have exhausted supply down in the unproductive caverns and dark bureaucratic holes in Wellington.

You better believe though that the sisterhood deep within Labour will not relinquish the control that they have had over New Zealand, the Land of the long trousers, short hair and hairy pits, for control is what this lot crave and they will do almost anything in their power, and they have it in spades, to hold on to it.

The recent proposed changes to electoral law to make it easier for the incumbent to stay in Government and stifle democratic debate has been widely canvassed in sensible media of late. The hand-wringing Chris Trotters and Russell Browns of this world largely see nothing wrong with stopping debate if you disagree with a point of view so haven't critically covered this as yet.

The grab main grab for power by Labour isn't going to be seen until mid next year when they go to the public for a forth term in office.

Labour and Micheal Cullen have been stockpiling stolen taxpayer funds to the tune of billions of dollars and have so-far refused to hand it back to those who earnt it in the first place because it will not earn votes so far away from an election.

The cynical grab for power by promising to spend billions of dollars of taxpayer dollars on you if they get in is reminiscent of Muldoon's lavish social driven election promises in the late 1970s/early 80s except it will go further in 2008.

Taxpayers, business and therefore the economy have been bled dry over the last 8 years by high taxes and lavish government spending and instead of cutting taxes for the self-imposed economic disaster that they helped create they are going to target special interest groups next year with welfare inspired tax credits, more handouts to students, elderly groups, low income earners and immigrant sectors and some but not much money, will go back to the middle classes that earnt this money in the first place.

Of course these kinds of handouts are designed to maintain the control that Labour and the left in general require and lust for but the horrible thing is that they may even placate those same middle-classes that will fund the 2008 power grab.

Are the middle classes that stupid?

Can they not see what has happened? To be sure the old give with one hand and take with the other has been reversed but is the process so hidden that the majority of New Zealanders wont see this 2008 power grab for what it is?

At least Robin Hood was honest, with Dear Mr Hood you knew were going to be robbed and the proceeds were going to go to the poor but for Ms Helen Hood the bluntness of her arrow is probably to her advantage because while the recipient is clear where the arrow came from and where it is going to, the translation of one from the other is muddied with bureaucratic and citizens blood.

The taxpayer funded power grab began at the 2005 election and was successful, just.

Billions of the middle classes taxes were used to buy the votes of the very people who supplied the funding and got Labour the seat of power by around 50000 votes.

To be fair $800,000 of taxpayer moola was also stolen by Labour to fund a pledge card and that kind of politicking cannot be understated in the light of electoral reform bills proposed to become law this year and used to cover off spending in the 2008 election.

In 2008 though we are likely to see the biggest push using taxpayer dollars to re elect a government that we have ever seen in our electoral history.

Cynical, dangerous and morally corrupt? Sure, but it is up to those middle classes to take back the power that they have let go that their taxes represent.

To do otherwise would be to ultimately let themselves and their country down.


c Darren Rickard 2007