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Woolworths Australia is unlikely to pay more than $7.50 a share in any takeover offer for The Warehouse Group, say analysts.
But some are asking if the sale of such a dominant general merchandise retailer presents a special case that could push an offer even higher.
The Warehouse
Group share price closed at $7.12 yesterday, down 14c on Thursday but still up 13c since Wednesday, when Woolworths applied for Commerce Commission clearance to increase its stake in The Warehouse from 10 per cent to 100 per cent.
At $7.12 a share, The Warehouse has a market capitalisation of $2.19 billion.
Groceries co-operative Foodstuffs also holds 10 per cent and before Christmas also sought Commerce Commission clearance to buy up to 100 per cent. Like Woolworths, Foodstuffs has not committed to actually making an offer.
Macquarie Securities analyst Warren Doak said the potential sale of The Warehouse had peculiarities, given its dominant retail role. A buyer would be able to make changes, including closing some Red Sheds and turning some into supermarkets.
The opportunity to buy store sites in one swoop arises rarely, as retailers such as Bunnings, Harvey Norman and even Domino's Pizza found to their detriment when they tried to get a foothold in New Zealand.
In their applications to the commission, Foodstuffs and Woolworths have both pointed to the downsides of the other buying The Warehouse.
But Doak said that if the sale went to either party the groceries duopoly was maintained. The losing party would still be better off than if The Warehouse was sold to a third party.
ABN Amro this week suggested The Warehouse could be worth $6.58 to Foodstuffs if The Warehouse incorporated Pak'n Save supermarkets into the red sheds.
Founder Stephen Tindall, controls 51 per cent of shares. He has indicated he is considering selling, but there is no guarantee that he will sell outright.
In September last year Tindall and Pacific Equity Partners offered around $5.75 a share in a privatisation offer that was knocked out of court when Woolworths bought its 10 per cent for $6.50 a share.
Analysts have told the Business Herald that buying The Warehouse would give Woolworths synergies worth about $300 million - about $1 a share above the $5.75 Tindall offer.
Before Christmas Forsyth Barr analyst Guy Hallwright said: "If you made some reasonably optimistic assumptions about the synergies ... then a bid of $7 to $7.50 is possible, but that's pretty much at the top end.
"It's now trading on significantly higher multiples than Wal-Mart, for example, so I don't think anybody should hold their breath and wait for much more than the current share price," he said.
On Wednesday Woolworths chief financial officer Tom Pockett claimed the true value of The Warehouse shares was about $5.
