Christopher Niesche: Message lurks in appeal on Red Sheds

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There was no need for Woolworths to rush to lodge its appeal against the Commerce Commission's Warehouse decision, just a week after the commission blocked it from buying the general merchandiser.

Woolworths put its appeal in yesterday without knowing why it had been rejected in the first place, when it actually had 20 working days to decide. In reality it probably had longer - the courts have discretion to extend that 20 days deadline and almost certainly would have had the Commerce Commission been slow in publishing its reasons for the rejection.

But what Woolies was trying to do was send a message to Warehouse shareholders: don't sell into the first takeover offer that you get.

With Pacific Equity Partners reheating its privatisation plan for The Warehouse and potentially making a bid within weeks, Woolworths had no time to lose.

The Australian retailer had already told The Warehouse board it was prepared to pay $7.15 a share, news that filtered through to the media last week. Now it needed to assure shareholders that it was still interested, despite failing to win Commerce Commission clearance.

Essentially, though, the choice hasn't changed for The Warehouse shareholders.

Should they be presented with a bid from Pacific Equity Partners - probably for about $6 a share - do they take that now? Or do they wait for the Woolworths appeal to run its course, potentially 12 months from now, to get 19 per cent more if Woolworths wins?

There are two big ifs. First, Woolies has to win the appeal.

Second, only The Warehouse board has seen the letter from Woolworths chief executive Michael Luscombe saying the company would pay $7.15 a share. Warehouse chairman Keith Smith hasn't publicly acknowledged that letter, which suggests it falls a long way short of any firm offer, otherwise Smith would be obliged to make it public under market disclosure rules.

So shareholders would have to be putting a lot of faith in Woolworths if they turned down a certain offer from Pacific Equity Partners for a potential offer down the track.

Woolworths already looks as if it's working on a contingency plan. Reports this week from Australia suggest it has expressed interest in buying Coles' 13 Kmart stores in New Zealand.

This would be a second-best option to its planned $2 billion bid for the 90 per cent of Warehouse shares it doesn't already own. That would give it 85 Red Shed store sites to add to its supermarket chain and immediately make it by far the dominant retailer in New Zealand.

As for Pacific Equity Partners, it has to decide whether it tries to trump Woolworths with a quick bid and deal with the spectre of a higher Woolworths bid looming over its own offer. Or it could risk waiting and hope that the Commerce Commission's decision can withstand an appeal so it can have an unimpeded run at The Warehouse.

Lawyers will be rubbing their hands together as Round 2 begins.

* Christopher Niesche is editor of the Business Herald

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