Buyout of Woolies clears first aisle

By SIMON HENDERY retail writer

Progressive Enterprises has cleared the first aisle in its bid for rival supermarket operator Woolworths, but is still well short of passing through the checkout.

Progressive yesterday won Commerce Commission approval to buy Woolworths - a deal likely to be worth more than $500 million.

But Australian-controlled Progressive still needs to convince Woolworths' Hong Kong-based owner, Dairy Farm International, to sell.

Even if Dairy Farm is keen to part with Woolworths - and yesterday it remained uncommitted - Progressive also faces a Court of Appeal challenge relating to the commission's decision to approve the sale.

The commission said yesterday that it was satisfied a merger of the two businesses, which together have about a 45 per cent market share, would not result in Progressive acquiring or strengthening dominance in any market.

It said that in most areas the merged operation would face strong competition from Pak 'N Save or New World stores - both owned by New Zealand's largest supermarket group, the Foodstuffs cooperative, which controls the other 55 per cent of the market.

The commission clearance is conditional on the divestment of supermarkets in the Auckland suburb of Birkenhead and in Te Awamutu.

Dairy Farm's group finance director, Ian Durant, said last night that the company had been approached by several potential buyers but had yet to decide if it would sell the 83-store Woolworths group.

One company that has shown an interest has been Woolworths Australia (which has no connection to its New Zealand namesake), but Mr Durant declined to name any other suitors.

"We will be evaluating the expressions of interest and having further discussions with all the parties."

A timetable for making a decision was dependent on Foodstuffs' Court of Appeal challenge to the criteria the Commerce Commission used to assess Progressive's application, Mr Durant said.

That challenge is expected to be heard early next month.

Shares in Progressive's Australian-listed parent company, Foodland Associated, gained more than 2 per cent on news of the Commerce Commission decision yesterday.

Foodland said it was continuing its discussions with JP Morgan, which Dairy Farm has appointed to advise it on the possible sale.

Foodstuffs managing director Tony Carter said the commission's decision was disappointing, and that if the merger went ahead it would significantly lessen competition within the industry.

The Consumers Institute has expressed similar concerns.

But Progressive's managing director, Ted van Arkel, said yesterday that the opposite was true.

"If we succeed with the acquisition, we will be able to compete with Foodstuffs on a much stronger footing.

"It is the consumer who will ultimately benefit as we will be able to increase our buying power and operating efficiencies, which will be able to be passed on to our customers."

The commission had delayed the release of its decision three times over the past six weeks. First, because of a heavy workload, then pending a High Court challenge by Foodstuffs, and finally because it wanted more time to gather information.

Progressive runs the Foodtown, Countdown and 3 Guys chains, while the Woolworths group includes Woolworths, Big Fresh and Price Chopper supermarkets.

Foodstuffs has the New World, Write Price and Pak 'N Save chains.