Foodstuffs launches raid on Red Sheds

A surprise $150 million raid was launched on The Warehouse yesterday by Foodstuffs in a bid to protect its share of the $10 billion grocery market.

The grocery co-operative - owner of the Pak'N Save, New World and Four Square chains - offered $5 a share for up to 10 per cent of the discount retailer.

Shares in The Warehouse surged $1.17 to $5.08 last night - a price well ahead of analysts' valuations, which range from $3.80 to as high as $4.80.

At close last night, Foodstuffs had just 4.2 per cent, as investors took a punt the co-operative would make a higher offer or that another predator would come forward.

The stake would give Foodstuffs, the country's largest supermarket group with about 57 per cent of the grocery market and $6 billion of sales, enough to block a long-rumoured takeover by giants such as Woolworths, Britain's Tesco or Wal-Mart of the United States.

Foodstuffs could also use this blocking stake to negotiate some form of co-operation as The Warehouse expands into groceries.

The discount retailer today opens the doors of the 12,500sq m Warehouse Extra - its first hypermarket with a full grocery, pharmacy, liquor, bakery and general merchandise offering - at the new Sylvia Park shopping centre in Mt Wellington.

Foodstuffs managing director Tony Carter said the co-operative would decide this morning whether to resume its stand in the market. He said it was seeking only a passive stake at this stage and had no intention of buying more shares or launching a full takeover. It would not seek a seat on The Warehouse board.

"We see The Warehouse as an attractive investment opportunity. It is a well-run business in the retail sector, which we know and understand, and being New Zealand owned ... its culture is similar to ours."

However, Carter would not rule out increasing the stake in the long term and said the Foodstuffs companies were substantial and "probably could afford to buy more".

"I don't think you can ever say never to anything, but it's certainly not our intent. We have board approval to purchase up to 10 per cent."

But he opened the door to the two retailers exploring other opportunities to work together.

"We think there are opportunities for joint initiatives in the future, however we haven't discussed those with The Warehouse. We would be receptive to talking about them."

Foodstuffs was looking for opportunities to grow and moving into general merchandise was an area it could explore to do this. He saw further competition from a foreign player in the grocery market as inevitable.

"We see it as inevitable that Woolworths Australia at some point will be acquired by one of the global retailers, be it Wal-Mart, Tesco ... someone of that nature."

The Warehouse chairman Keith Smith called Foodstuffs' move a "defensive initiative" to protect its 57 per cent share of the grocery market.

"It appears Foodstuffs recognises the value that will be created through the new format and that The Warehouse's market share of the grocery sector is likely to grow to well beyond the market share the company now enjoys."

Smith said The Warehouse board believed Foodstuffs' offer was not in the best long-term interest of the company.

He believed The Warehouse shares had been trading significantly below their fair value and Foodstuffs' offer did not offer a significant premium above that.

The Warehouse founder Stephen Tindall, who controls just over 51 per cent of the company on his own account and through shares held by the Tindall charitable foundation, said he would not sell.

He also said talk that he was reviewing his investment in The Warehouse was misplaced.

FOODSTUFFS

* New Zealand's largest supermarket group.

* Made up of three regional co-operatives in Auckland, Wellington and Christchurch.

* Owns the Pak'N Save, New World and Four Square chains.

* Holds about 57 per cent of the New Zealand grocery market.

STAKEHOLDERS

* Foodstuffs now owns 4.2 per cent of The Warehouse, making it one of the largest shareholders after Stephen Tindall, who has 27 per cent and the Tindall Foundation with 24 per cent.