Sunday, March 16, 2008

The Warehouse set for a turbulent 2008
The Warehouse Group Ltd
(WHS.NZ: Quote, Profile, Research)

NZX 2008 Interim Result - NZX
HY Profit up 7% - Reuters
Warehouse profit rises 7% on warranties - Bloomberg

The Court of Appeal will hear on April 29, the Commerce Commission case in seeking to overturn a High Court ruling allowing Woolworths Australia [WOW.ASX] and Foodstuffs supermarket companies to bid for The Warehouse Group [WHS.NZ]

In the wake of flat profits reported on Friday14 (NZ Time) the outcome of this case will come under closer scrutiny by investors in a New Zealand sharemarket racked with uncertainties.

Unfavourable global market conditions, a dismal forward look at the New Zealand economy, a drop in profit forecast by The Warehouse itself, and local and foreign investors disgruntled over recent Government intervention in Auckland International Airport [AIA.NZ] and their assault on private property rights, makes the case for a quick decision by the court even more compelling.

Investors have voted overwhelmingly to sell their shares in Auckland International Airport on Thursday last week and the same will be the case when and if the 3 parties to The Warehouse saga are given the go ahead to make a deal.

As mentioned before in this column I have every belief that the deal will happen, even if it has to go the way of the Supreme Court sometime at the end of 2008.

The only drawback to a Supreme Court ruling though is that the bench is stacked with politically appointed Labour Party Judges, so a verdict there could be in question.

The motivation for the buyers in this process to acquire, I think, will be higher than before the current credit squeeze. Clearly if credit gets horrendously expensive, the weaker player in terms of finance capabilities, Foodstuffs, may find it difficult to offer a competitive price for The Warehouse and therefore have to drop out.

Woolworths still have the upper hand in terms of available financing so the fortune favours the Aussies and the credit mess we are facing may in actual fact go in their favour . They have large cash reserves and future cash revenue to boot.

We await with keenness for a decision from the High Court, but uncertainty over the decision, given current political overtones and issues over perceived "kiwi assets falling to filthy foreign control", with a decision to also be made by the overseas investment office, may leave investors in The Warehouse disappointed, in an election year filled with emotional baggage left over from the distant 1980s and a Socialist government bent on Neo Muldonism.

Disclosure: I own WHS shares

The Warehouse Group @ Share Investor

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