Woolworths shopping for bigger stake in Warehouse

Woolworths' Grant O'Brien has plans for expansion in New Zealand. Photo / Dean Purcell

Woolworths is interested in increasing its stake in The Warehouse, says the soon-to-be chief executive of the transtasman supermarket giant.

Until now, the company has been reluctant to comment on whether it would consider upping its stake in the New Zealand budget retailer.

ASX-listed Woolworths owns Progressive Enterprises - which operates Countdown stores in this country - and already holds a stake of almost 10 per cent in The Warehouse.

"We would very much like to be a larger owner of The Warehouse," said Woolworths deputy chief executive and CEO designate Grant O'Brien while addressing members of the New Zealand Food & Grocery Council in Auckland yesterday.

"It is a business that is of interest to us."

O'Brien, who will take over from Michael Luscombe as chief executive in October, said a multimillion-dollar impairment charge related to its stake in The Warehouse, incurred in the 2009 financial year, did not give Woolworths cause to question the robustness of the retailer.

"It's a terrific business and it's a business ... that we're happy to be a part owner of," he said.

The Warehouse reported a 2.8 per cent drop in sales to $1.7 billion in the 12 months to August 2010.

Goldman Sachs retail analyst Buffy Gill said O'Brien's statements yesterday were an interesting development.

"If [Woolworths] are indicating that they actually want to increase their stake that's quite significant."

However, a takeover attempt could be blocked by Foodstuffs, which holds a similar-sized shareholding in the retailer.

It would also involve dealing with Warehouse founder Sir Stephen Tindall, who owns stakes that give him around 53 per cent control of the business.

Foodstuffs - which operates New World, Four Square and Pak 'N Save stores - is the Australian company's main competitor in New Zealand.

"If they wanted to gain control [of The Warehouse] they would have to deal directly with Foodstuffs and get Foodstuffs' stake for any sort of takeover to happen," Gill said.

But she said Woolworths could increase its stake to 20 per cent through buying shares on market, and through such a move could get representation on the retailer's board.

Meanwhile, O'Brien said that Woolworths had big expansion plans for Countdown in New Zealand.

It had already invested more than $1 billion in this country since it acquired Progressive Enterprises in 2005.

"That investment will continue," he said. "That means more new stores and more investment in this market, new jobs and everything that goes with it."

O'Brien said the company was also investing in supply chain infrastructure.

But the global financial crisis had introduced new challenges for the transtasman retailer, as it had made consumers less inclined to part with their cash.

O'Brien, a former Aussie Rules footballer who hails from the Tasmanian seaside town of Penguin, said he did not visit New Zealand often but liked the country.

"It reminds me of Tasmania." he said.

Shares in The Warehouse closed down 2c at $3.43 yesterday. Woolworths shares closed up 35c at A$27.33 on the ASX yesterday.