Eyes on Woolworths as Tindall pulls back from Warehouse bid

Speculation is mounting that Woolworths will seek to increase its holding in The Warehouse after red shed company founder Stephen Tindall yesterday pulled out of a bid to privatise the company.

Mr Tindall said he, in a consortium with Australia's Pacific Equity Partners, would not proceed with a planned $5.75 cash per share bid to buy the 49 per cent of shares in The Warehouse unrelated to him.

That followed the purchase of a potential blocking stake in the discount retailer, by Australian supermarket giant Woolworths.

Both Woolworths and rival supermarket operator Foodstuffs own 10 per cent of The Warehouse.

The Australian newspaper reported today that Woolworths was now expected to start negotiations to buy The Warehouse.

Woolworths' purchase of its 10 per cent stake, its first strategic move since chief executive Michael Luscombe took the reins from former boss Roger Corbett, led to speculation of a takeover battle for the company between Woolworths and Foodstuffs.

Both supermarket chains can now prevent Mr Tindall reaching the 90 per cent ownership threshold necessary to mount a compulsory purchase of all outstanding Warehouse shares and take the company private.

But New Zealand corporate regulations allow for Mr Tindall to vote his majority stake in a takeover if it is structured as a scheme of arrangement rather than an on-market bid.

That effectively meant Mr Tindall could hand control of The Warehouse to the buyer of his choosing.

He had planned to privatise the company to overhaul what is primarily a general merchandise operation and extend it into grocery and fresh food retailing.

The capital expenditure required for such a re-engineering would erode earnings in the short term, a situation which would probably stretch investor patience if the company had remained in public hands.

But Woolworths and Foodstuffs were unenthusiastic about the prospect of a new competitor entering their market.

Woolworths wanted to expand into general merchandise in New Zealand, an aim that could be most easily achieved by buying The Warehouse.

The Sydney Morning Herald said Mr Tindall was expected to approach Woolworths and Foodstuffs as early as this week to discuss ownership.

Mr Tindall, who would not comment directly, had just returned from overseas, where it was believed he had planned to meet executives from supermarket majors Carrefour and Tesco.

There had been talk that he was willing to sell his shareholding and that his privatisation proposal was part of a strategy to flush out a potential buyer.

Deutsche Bank research analyst Lily Kwong said The Warehouse Group would be a good strategic fit for Woolworths, which could afford to pay up to $8 a share if it could convince the market of the benefits.

"We would not be surprised at an agreement between (Mr) Tindall and Woolworths," Ms Kwong said in a note to clients.

Meanwhile, The New Zealand Herald today quoted sources close to Mr Tindall's camp saying The Warehouse founder had not given up ambitions to take greater control of the company he founded.

The sources said Mr Tindall was still involved with Pacific Equity Partners, and they were still working on approaches that would give Mr Tindall greater control of The Warehouse.

"It would be fair to say there have been and are now a lot of discussions involving a number of parties," a source familiar with the situation said.

Another source said discussions also involved people who were not already shareholders, but declined to name them.

It was understood Woolworths was seen as the more problematical shareholder given its resources and its ability to launch another lightning raid on the 29 per cent of shares not controlled by Tindall, the Tindall Foundation, Woolworths or Foodstuffs.

As a co-operative, Foodstuffs had limited options to launch another share raid, but any move by Mr Tindall to form a closer relationship with Foodstuffs would risk a Woolworths raid to halt that.

Foodstuffs New Zealand chief executive Tony Carter welcomed Mr Tindall's statement yesterday as clearing the old offer off the table. Woolworths was not commenting.

- NZPA