Woolworths to make offer on Warehouse

Woolworths, and fellow retailer Foodstuffs Ltd, are currently awaiting the outcome of a New Zealand court appeal process to determine if either company will be allowed to make an offer for The Warehouse.

Softer economic conditions in New Zealand and declining earnings from The Warehouse Group have lessened the operating performance and outlook for the takeover target according to Deutsche Bank analyst Kristan Walker. Also, Foodstuffs being a co-op makes access to capital a bit more challenging.

Asked if this would deter Woolworths chief executive, Michael Luscombe, from making a bid, if the New Zealand court gives the green light, Walker speculated that Luscombe would have a strong resolve to get that business and would be the most likely successful bidder, even though Foodstuffs, alongside Woolworths, holds a 10% stake in The Warehouse.

"Acquisition opportunities are scarce, and a share buyback offers limited appeal," Citigroup said in a research note. Deutsche Bank estimates that The Warehouse could be worth about NZ$6.25 a share to Woolworths, much lower than last year's takeout value of NZ$7.00 a share. The depressed share price could make founder and majority shareholder, Stephen Tindall, a reluctant seller.

If Woolworths gets the go-ahead, it will be Luscombe's first major takeover since becoming chief executive in 2007. But even if so, it wouldn’t be a done deal. There has been some speculation that private equity would team up with Foodstuffs and to provide enough capital to prevent a takeover.