KEY POINTS:
As investors gather today for the annual meeting of The Warehouse Group and an expected address by founder Stephen Tindall, some analysts are predicting Woolworths may be willing to pay $8 a share for the company.
Yesterday's High Court decision overturned a ban on Woolworths and Foodstuffs bidding
for The Warehouse Group, but prospective buyers will pay more than they were talking about this time last year, analysts suggest.
The share price for New Zealand's biggest general retailer surged as much as 25 per cent yesterday after the High Court overturned the Commerce Commission ban and effectively put the Red Sheds back on the market. Shares closed at $6.15.
One source said the commission and High Court hearings had put the sale on hold. "We are really going back to where things were left in June."
If the commission decides to appeal the High Court decision to the Court of Appeal, the sale process will be on the back burner, removing investors' hopes for a sale premium.
The commission - which said it was disappointed at the High Court decision - has 20 days to decide whether to seek leave to appeal.
If the commission does not appeal the High Court decision, buyers will be looking at the next move by Tindall.
He set off the play for the company in September last year when he tried to privatise it through a scheme of arrangements with Australian private equity firm Pacific Equity Partners.
But after Woolworths bought 10 per cent of Warehouse shares for $6.50, his offer of $5.75 was obsolete and he and PEP pulled out.
Tindall has maintained good relations with PEP raising questions whether the two could resurrect an offer possibly alongside Foodstuffs.
New Zealand's biggest supermarket firm, the Foodstuffs co-operative, has an interest in preventing its arch rival in the supermarket business, Woolworths, from taking bigger foothold in the New Zealand market.
Macquarie Equities New Zealand investment director Arthur Lim said Woolworths was likely to attempt a takeover.
"We believe Woolworths has a strong appetite for acquiring The Warehouse and is expected to be able to pay an attractive price reflecting the obvious synergy and strategic advantages," he said.
Either Woolworths or Foodstuffs could bid under the Takeover Code, but would struggle to get to the 90 per cent threshold required to compulsorily acquire The Warehouse, given their respective 10 per cent shareholdings.
A bid through scheme of arrangement - which would allow Tindall to keep a significant stake - remains an option.
It was not clear whether the Takeovers Panel would approve a cash-only bid via this structure, Lim said.
In June Woolworths was disclosed as making an initial 'indicative' offer of $7.15. By removing the 40 cents capital repayment component that amounted to $6.75, he said.
Lim said that indicated Woolworths was prepared to go higher.
"The first bid is never the last bid. Woolworths paid $6.50 for the first 10 per cent they took to be at the table."
In theory it could pay $8.09, he said.
Foodstuffs said it welcomed the High Court decision.
It's happened before
Simpson Grierson competition and regulatory law specialist James Craig said the High Court's decision to overturn the Commerce Commission ruling on The Warehouse was not the first time the commission had been overruled.
"In terms of recent cases the commission's decision has generally been upheld. It's not that common but it has happened in the past."
Craig said the decision was unlikely to be the end of the saga.
"The commission can appeal the ruling and for a case like this there is a good chance they will appeal it. If they don't, the decision will certainly set a precedent."
Craig said the main issue in the case centred around whether the small number of Warehouse Extra stores would actually be able to provide significant competition for other supermarkets.
