James Pascoe Ltd - the vehicle for David and Anne Norman - has a 19.9% stake in The Warehouse, or about 40% of the non-Tindall stock.
The Normans also own a handful of other household names such as Farmers, Whitcoulls and Pascoes.
On the sharemarket, eyebrows were raised last week - before speculation of a deal first emerged in the Australian media on Monday - when shares in The Warehouse rallied sharply, to the point where it was the week’s best performer with a 10% gain.
Salt Funds managing director Matt Goodson stressed that it is an indicative offer, not a firm bid.
In June, The Warehouse said it expected 2024 sales from continuing operations to be between 6-7% lower than the prior year, and full-year earnings before interest and tax, excluding the loss from discontinued operations and any potential restructuring costs, to be in the range of $22m to $30m, down from $83.4m the prior year.
Goodson said the deal may require a due diligence book-checking exercise if current trading is even worse than it has been.
“Then there is the time value of money. By the time things get firmed up, and there is court approval, it could be quite a few months,” he said.
“Then there is the risk as to whether it actually happens, because the Normans have 19.9%.”
The Normans first appeared on The Warehouse’s share register in 2014, when the share price was higher and when the retail chain was a force to be reckoned with.
“Clearly, The Warehouse is not the company that it once was when they invested a few years ago,” Goodson said.
Meanwhile, the talk in the market has been that Tindall and Adamantem may have supermarket ambitions.
“They will need some expertise to do that, which they should be able to attract,” Goodson said.
“The question though is the configuration of The Warehouse and whether their stores are in the right place to be able to have a consistent offer that can compete with major supermarkets.”
Goodson said if Tindall and co were to go down the supermarket route, a smaller, no-frills model such as that offered by Aldi in Australia might be the way forward.
Even though The Warehouse has jettisoned its Torpedo 7 business and TheMarket.com, it still has Noel Leeming, Warehouse Stationery and Warehouse red sheds.
Warehouse Stationery has been a dependable earner for the group, and until recently Noel Leeming has been the pick of the bunch.
Noel Leeming, the electronics chain, has faced an economic downturn and stiff competition from Australia’s JB HiFi.
Goodson said if The Warehouse became a grocery play, it would require a lot of capital to reconfigure its stores.
Analysts said the outlook for retail has perked up somewhat due to a change of stance from the Reserve Bank, which may see the official cash rate fall later this year, and a better-than-expected inflation outturn for the June quarter.
Devon Funds head of retail Greg Smith noted The Warehouse was going through a strategic repositioning.
“There is no reason to believe that that might not bear fruit further down the track.”
He said the company’s three remaining businesses had not been a great fit.
“Maybe there is potential to take that divestment process even further,” Smith said.
He said many of the company’s shareholders would have bought shares during more profitable times - the share price went as high as $4.11 late in 2021, compared with today’s indicative offer range of $1.50 to $1.70.
If the offer proceeds, “it may be that not everyone will get a bargain”.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
