Tantalising hint of supermarket assets

The Woolworths, Foodtown and Countdown supermarkets will be listed on the sharemarket if Australia's Metcash gets its way.

Metcash, a liquor and grocery wholesaler, yesterday bid A$846 million ($917 million) for the New Zealand supermarkets' Australian parent, Foodland Associated, which also runs the Dewsons and Supa Valu chains in Australia.

However, Metcash is not interested in the New Zealand assets of Foodland, which contributed 65 per cent of 2004 earnings but are seen as having limited growth potential.

It has offered Foodland shareholders A$7.18 in cash or Metcash stock and one share in Foodland's New Zealand arm, Progressive Enterprises, for every share they own.

Foodland shares soared A$4.14 to A$23.35 after the news of the bid, while Metcash shares remained on a trading halt at A$2.94 at the close of trade.

Foodland is gearing up to oppose the takeover, advising its shareholders to sit tight and hiring ABN Amro to help fend off the bid.

Local fund managers were last night showing cautious interest in the takeover offer which could present attractive investment opportunities if the local assets are indeed listed.

"There's a bit of water to go under the bridge first," said James Lindsay, joint domestic equities manager for Tyndall Investment Management.

"The business is very complementary in Australia, there'd be quite a buyer purchasing power benefit of combining those businesses."

Some market observers think it unlikely that the listing will ever go through, with a large Australian retailer expected to buy the New Zealand assets.

"There'd be plenty of appetite from New Zealand investors to look after those assets," said one fund manager.

"But the opportunity might not come our way. Those assets are pretty juicy to a Woolworths or a Coles Myer."

The Metcash offer follows speculation this month that Foodland was eyeing up Metcash as an acquisition target. There have also been rumours in the market of a Woolworths takeover of Foodland's New Zealand assets.

If the deal went through, it is likely a secondary listing on the NZX would be pursued.

But a Foodland spokesman said the proposal came as a surprise and had provisions that made it unattractive.

"It's forcing [shareholders] into holding those shares which essentially they own now in the form of Foodland shares and with the lesser voting rights of a preference share."

Metcash said the off-market takeover offer values the local assets at A$7.18 a share and represents an implied premium of 39 per cent to the estimated value of Foodland.

To pay for the deal, Metcash will seek to raise A$234 million through the issue of 90 million shares.

Metcash chief executive Andrew Reitzer has long signalled the company needed to make another acquisition to keep up growth momentum but said that the purchase would probably be outside Australia.

"The stated objective is to acquire a business, similar to our core businesses, with a sales volume of about $1 billion, with the capacity for further development and growth, to which we can add value. It is likely that the business concerned will be located outside Australia," he wrote in Metcash's 2004 annual report.

additional reporting: Bloomberg