KEY POINTS:
The Commerce Commission's rejection of Woolworths' and Foodstuffs' bids to buy The Warehouse may have given Stephen Tindall and his old partners Pacific Equity Partners the shot in the arm they needed to resurrect the privatisation of the company.
"It could be back to the future for Tindall and PEP," said one source close to the Tindall consortium that tried to privatise the Warehouse in September.
Tindall, The Warehouse founder - and always the key player in the battle for the Red Sheds - is soaking up the sun in Valencia for the America's Cup.
But back in Australia and New Zealand, retailers and competition lawyers are left with no more certainty after the commission decision yesterday that prevents Woolworths or Foodstuffs buying the Red Sheds.
Woolworths is understood to be stunned by yesterday's decision.
Woolworths Australia joined Foodstuffs New Zealand in January last year seeking commission clearance in advance of making a bid for The Warehouse Group.
Like others in the market, it was initially convinced that the commission had limited grounds to reject the applications by finding it reduced competition in the grocery market.
But the aggressive Australian retailer is now left to consider appealing against the decision, despite being aware that its ambitions for the Red Sheds may be thwarted by a revived Tindall/PEP bid.
In a brief statement, the commission said: "Commerce Commission chair Paula Rebstock said that the commission was not satisfied that either of the proposed acquisitions will not have, or would not be likely to have, the effect of substantially lessening competition in the relevant markets."
That was as much detail as the lawyers had to pore over yesterday. The full, detailed reasons for the commission's rejection - on which hang the potential of a successful appeal - have not been released, but Woolworths says it expects them within two weeks.
However, other observers say it could be longer.
Competition lawyers say the commission must have taken issue with the Warehouse Extra Grocery offering. It appears they believed the sale to one or other of the grocery giants would have removed the potential for a third "maverick" player in the grocery market.
Woolworths and Foodstuffs both issued anodyne press releases saying they were "disappointed" by the decision.
But for Woolworths - used to winning cut-throat acquisition battles across the Tasman - yesterday's rejection is a double whammy.
Woolies - which owns Countdown, Foodtown, Woolworths and Dick Smith Electronics - desperately wants to dominate the general goods market in New Zealand.
And buying the Red Sheds would have enabled instant dominance without protracted legal battles to build new stores on increasingly scarce prime retail sites.
Now, Woolworths faces delays deciding whether to lodge an appeal and continue its long-running legal process.
Worse, the decision hands back the reins to Stephen Tindall, whose privatisation bid Woolworths believed it had killed off back in September when it trumped the bid with a $6.50-a-share offer.
The rejection is far less daunting for Foodstuffs - which owns Pak'n Save, New World and Four Square - as it had less ambitious aspirations for the Red Sheds.
One of its main aims in seeking clearance was to stop Woolies expanding.
Yesterday, Foodstuffs chief executive Tony Carter was relaxed about the decision and said he was prepared to look at all options.
But it is increasingly clear that Foodstuffs has more options than Woolworths.
Carter will not talk about the "commercially sensitive" discussions he has had with Tindall.
Nor will he talk about the relationship with Pacific Equity Partners, the Australian private equity firm that backed his aborted privatisation bid in September last year.
Woolworths aimed at a 100 per cent takeover, but there have been signs that Foodstuffs might be relaxed with a much smaller stake - it could hold 19.9 per cent without have to seek Commerce Commission clearance again - alongside a bid by Tindall, PEP or both.
PEP has an intimate knowledge of The Warehouse from its earlier bid and is understood to be working on a fresh bid. The Australian private equity firm already has significant retail assets in Australia and New Zealand and is part of a consortium bidding for Australian retailer Coles.
Woolworths is feeling aggrieved about the process in which it has faced long legal delays and indicated a willingness to pay $7.15 a share - despite The Warehouse board refusing to publicly to acknowledge it.
One source close to the Woolworths camp said company executives were "stunned" that the Commerce Commission may be ruling out a purchase on the basis of the Warehouse Extra offering with just three stores and with expansion capped at 15. "It's just bizarre," said the source.
With Woolies out of the picture, some analysts are predicting that a revitalised Tindall privatisation bid - with shareholders offered as low as $6 - won't be far away.
If that's the case, shareholders would be the other big losers from the commission's decision.
With the Tindall/PEP threat looming, it is not clear whether Woolies will want to go through the motions of a costly appeal. The result would be irrelevant if the company were already sold.
But the decision is expected to keep competition lawyers busy.
Tony Dellow of Buddle Finday in Wellington and Simpson Grierson's Shelley Cave reject the suggestion - common in business - that the Commerce Commission is making leaps in logic in its recent decisions.
"But I think that you can say they are being more aggressive in their determinations than they were in the past," Dellow said.
Meanwhile, The Warehouse management continue to bring in the bargain hunters.
Macquarie Equities investment director Arthur Lim says the ongoing ownership struggle will be bad news.
"Morale at The Warehouse has been severely impacted by the uncertainty and the delays over ownership," Lim said. "Another extended period of uncertainty would be intolerable and value destructive."
The pressure is now on Tindall to make a decision about whether he will join PEP for another shot at privatising the company.
But, says Lim, this would probably require a higher price than the initial $5.75 offer.
Forsyth Barr retail analyst Guy Hallwright agrees that the market would expect to see a renewed Tindall/ PEP offer closer to the $6 mark.
"In fact, if they were to bring in Foodstuffs as a third partner, there might be synergies there which mean they could afford to pay more," he said.
But Hallwright isn't convinced that The Warehouse operations are at risk from another extended period of ownership uncertainty.
"There's plenty for them to get on with," he said.
"The decision seemed to have been made to pull back from a full scale roll-out of store transformations and the food offering.
"But they still need to upgrade the stores quite considerably," he said.
With any takeover premium removed, Hallwright believes the underlying value of The Warehouse shares is now about $4.70. That's including transformation programmes.
The history
June 5, 2006: Wary that Woolworths Australia had bought Progressive Enterprises and at plans to develop a grocery offering - Warehouse Extra - Foodstuffs buys 10 per cent of The Warehouse for $5 a share.
September 14, 2006: Stephen Tindall announces plans to privatise The Warehouse with a scheme backed by Pacific Equity Partners. Sharebrokers and analysts are ambivalent about the $5.75 a share offer.
September 27, 2006: Woolworths Australia kills off the Tindall $5.75 offer by paying $6.50 a share for 10 per cent of the group in an overnight raid, matching Foodstuffs' stake.
January 2007: Placed in the middle of a potential bidding war for his 51 per cent controlling interest, Tindall entertains approaches from both Woolworths and Foodstuffs and - sources say - insists they obtain Commerce Commission clearance before commencing serious negotiations.
January to June 2007: As expected, the Commerce Commission extends its deadline for deciding the clearance applications. The sharemarket believes there is no prospect for either being turned away, but the longer the decision the more they expect a "no".
June 6, 2007: The Business Herald reports that Woolworths has approached The Warehouse suggesting it would be prepared to pay $7.15 a share and there are rumours Foodstuffs is prepared to pay up to $7.75 per cent.
June 8, 2007: The Commerce Commission finally releases its decision, declining both applications. Chairwoman Paula Rebstock says the commission "was not satisfied that either of the proposed acquisitions will not have, or would not be likely to have, the effect of substantially lessening competition in the relevant markets".
Winners
* Pacific Equity Partners - now with a clear shot at making a fresh offer
* Stephen Tindall - if he wants to revive his privatisation plans
* Foodstuffs - the dominant NZ grocery player has seen off the Woolworths expansion threat and may yet have a role to play with PEP and Tindall
* Lawyers - a long, juicy court case looms
Losers
* Woolworths - needs the acquistion to challenge Foodstuffs in NZ but now faces a long and costly court battle to have any hope
* Shareholders - initial hopes of a bidding war and an $8 share price look like a distant dream
* Stephen Tindall (left) - if he still wants out
