History of Warehouse takeover players indicates a long winding road

With The Warehouse Group [WHS.NZX] shares taking a dive over the last week or so because of their weak sales data and grim outlook in the medium term, the attractiveness to speculators wanting to get an even better slice of the company and flog it off to Woolworths Australia [WOW:ASX]-I don't think Foodstuffs are in the game because of their shallow pockets-is an opportunity going begging for.

Given that the Overseas Investment Office has already given its approval for Woolworths OZ to acquire the owner of the Red Sheds the only stumbling block for the big W will be for them to lose their defence of an appeal by the seriously malfeasant Commerce Commission(CC), who want to put the brakes on any possible deal to stitch up The Warehouse with Foodstuffs or Woolworths OZ.




The Warehouse Group @ Share Investor

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WHS Court of Appeal case could be dismissed next week
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Much of the Commission's case relies on the potential of The Warehouse Extra to provide competition to the current "duopoly", stunningly a duopoly that the Commerce Commission itself voted for when it initially allowed Progressive to merge Foodtown's brands with Woolworths NZ in 2002. Woolworths Australia then bought that merged entity in 2005.


Dr Farmer said the High Court at Wellington was wrong in fact when it concluded it was unlikely the Extra store concept would be expanded and even if it did succeed it was unlikely to exert competitive pressure.

"It would be ironic that the firm, which has the potential to expand and which is already exerting pressure on the incumbents, should be able to be the subject of acquisition by one or other of those incumbents, thereby subjecting consumers once again to the duopoly," Dr Farmer said.

James Farmer QC April 30 2008.


Ironic indeed Dr Farmer, have you read your client's former cases that initially advocated a duopoly in 2002?

The Warehouse itself has stated that the Extra format hasn't achieved the potential that they thought it would and it seems unlikely that they will expand the current 3 stores to the 15 planned ones.

Farmer then spent much time grasping at straws by arguing over what the term"likely"might mean.

There is fierce competition for market share in the supermarket sector though and if you look at the trail of litigation over the Progressive/NZ Woolworths merger of 2002, where an appeal was taken all the way to the Privy Council by Foodstuffs, lost, and then writs and a judicial review taken regarding the Overseas Investment Commission and their decision to allow the merger. The whole process began in May 2001 and was only rectified towards the end of 2002.

As I have indicated in earlier columns, even if the appeal to the High Court is lost by the CC, and I think they will lose-they lost their 2002 case after changing their initial positive stance to allow a merger, due to a small change in competition law- they can still put their tail between their legs and run off to the Supreme Court in Wellington and start yet another appeal. The history of these supermarket players and the Commerce Commission would indicate that the Supreme court is the most likely scenario. In which case any decision, either way, will be closer to the end of 2008.

The Warehouse shares were down 2.8% to NZ$5.20 or 15c on over 1 million shares traded today and any further weakness in share price is an opportunity for a good short to medium term play.


Related Reading

Warehouse takeover battle in court TVNZ
NZ retail duopoly court case begins The Australian
Woolworths still keen on NZ's Warehouse - report Reuters


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Share Investor News

I am pleased to announce another website from the Share Investor stable.

At Share Investor News ,investors can keep themselves up to date with investment and finance news from the likes of Reuters, BBC Business video, Forbes, NBR.co.nz and more, with much more content to come.

It is all updated live via RSS feeds and of course available from the Share Investor sites links to the left column of this page or by typing www.news.shareinvestorforum.com into your browser.

The news site is part of the coming new permanent home for the Share Investor Forum, www.shareinvestorforum.com, where investors can discuss the minutia of investing to their hearts content.

I hope you find the new news site useful and if you have any suggestions or comment please contact Darren.

c Share Investor 2008

Why did you buy that stock? [Michael Hill International]

I initially resisted buying shares in Michael Hill International, [MHI] the operator of approximately 200 Jewelry stores in New Zealand, Australia and Canada because the dividend wasn't big enough.

Buying Michael Hill shares would be contrary to my investing belief that an investment should pay good returns, right from the beginning, when you plunk down those hard earned sheckels.

Why did you buy that stock?

Why did you buy that stock? [Mainfreight]
Why did you buy that stock? [The Warehouse]
Why did you buy that stock? [Goodman Fielder]
Why did you buy that stock? [Auckland Airport]
Why did you buy that stock? [Sky City Entertainment]

I then watched over the years as MHI management continued to have a sustained success in their business and have 20 plus years of good revenue and profit growth behind them.

I then re thunk my position on dividends and returns and decided to look longer term, where I thought Michael Hill's main prospects lie.

Therefore the main reason I bought MHI shares was in the company and its good long-term prospects, 5 years and up. Granted, it is doing well currently but its big future lies in the long-term management and progress of the company for even better investor returns.

Its position in my high dividend portfolio as a "growth stock" marks it out only with Pumpkin Patch Ltd [PPL] in that respect. My portfolio was previously lacking in such growth stocks and it is probably prudent for investors to have one or two in their portfolios.

Good management marks this company out from many others listed on the NZX and as you might know, as a seasoned investor, good management of a company is the most crucial part of a business, save the product or service being sold. Management for me is another key reason for picking Michael Hill. This is embodied in Michael Hill, the man himself, and he has provided a culture where his other managers are able to run the company the way he would want and therefore the transition to another CEO in the future will be relatively easy-another good long-term indicator.

Once again, and it seems to be a recurrant theme that runs through the businesses that I pick to invest in, they are easy to understand. Like the other retailers in my portfolio, Pumpkin Patch Ltd [PPL] Postie Plus Group [PPG] and The Warehouse [WHS] they simply sell goods to the public. Easy peasy.

For me, having Michael Hill has part of my portfolio provides an opportunity for me to participate in a growing business in which the full benefits of that growth, in terms of larger profit , a bigger company and revenue are still many years down the track. Along with excellent management and and easy to understand business any significant dips in share price would be a good opportunity for me to acquire a much larger stake than my current 1000 share holding and I wouldn't hesitate to take that opportunity.


Essential Links

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c Share Investor 2008

Burger Fuel management cagey over company progress

Further to the story about Burger Fuel Worldwide[BFW] signing a master franchise deal with a business in Dubai, I mentioned I was going to ask Josef Roberts, Executive director of the company a couple of questions to flesh out the details of the deal to the market and his investors.

He was very accommodating before the July IPO, granting me an email interview about where the company was going, in some detail.


Here were the questions I put to him yesterday


Hi Josef, I hope you are well.

Interesting announcement today re the Dubai franchise deal. It took me by surprise.

On that note, I wonder if you could inform my readers as to some of the finer points of the deal and some of the reasons why you took the business across the other side of the planet.

Assuming you could answer some questions because the market is speculating.


1: why are you going to develop a new overseas market before establishing the current Australian one?

2: Did the Dubai company approach BF or you them?

3: Are the terms of the master franchise similar to that of individual franchisee agreements in New Zealand?

4: What number of outlets do you see in Dubai?

5: Are customers likely to be locals or expat kiwis/Aussies/Brits etc?

6: How will the BF menu be different in such a unique country?

7: What experience does the Dubai company have being a food franchisor?

8 How is Burger Fuel Worldwide going in terms of revenue created for the Franchise company as a whole and are you on track?

9: How has your experience of your company now differ from what you thought it would be when you initially planned this listed franchising model, have things changed considerably?

10: Is Australia proving difficult to crack, given the amount of competition in Sydney?

11: How has the current credit crises affected your business expansion, if at all, and is the associated economic slow down having any affect on store sales?

12: Finally, where do you see Burger Fuel being in 12 months?


I would appreciate your assistance in informing my readers. There is much google interest on our blog every time you guys have a press release and we have had a handful of Dubai hits today, just as a matter of interest.

Regards, Darren



Josef's answer to my questions

Hello Darren

To paraphrase your own comments about BurgerFuel and me – “Go Figure”.
All the best.

All I can say is it would have been nice to hear some detail about the Dubai deal and where his company might be heading and how it was doing.

My questions were really stimulated by the company and its big leap right across to the other side of the world before being properly established outside New Zealand, in their first overseas market, Australia.

I felt that his investors might like to know the finer points of this move.

As I said above, Josef was very accommodating before the Burger Fuel IPO and I was expecting the same sort of candidness as the company progressed.

I realise his curt response maybe motivated by some of my criticism but after all it is only my opinion and therefore his side of the story would at least balance things.

Nevertheless I still wish him and his company well and hope his lovely burgers(minus the bacon) take off in Dubai.



Burger Fuel @ Share Investor Blog

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Don't buy Burger Fuel, yet
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Burger Fuel share price out of gas
Beefing up store numbers
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Burger Fuel results and commentary



c Share Investor 2008