Monday, May 12, 2008

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

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

Share Investor Forum-Discuss this topic

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

Related Links

The Warehouse Financial Data

Related Amazon reading

The Wal-Mart Effect: How the World's Most Powerful Company Really Works--and How It's Transforming the American Economy

The Wal-Mart Effect: How the World's Most Powerful Company Really Works--and How It's Transforming the American Economy by Charles Fishman
Buy new: $10.20 / Used from: $8.50
Usually ships in 24 hours

c Share Investor 2008 & 2009

No comments:

Post a Comment

Comment on Share Investor Stuff