Woolworths Australia reported to be still on hunt in New Zealand

12.00pm

Woolworths Australia is still said to be on the hunt for a New Zealand operation despite missing out on buying its unrelated namesake in New Zealand yesterday.

It was announced late yesterday that Woolworths New Zealand food had been sold to Foodland Associated for $690 million.

The Australian Financial Review today said today that analysts are convinced Australia's largest food retailer, Woolworths, will eventually expand in New Zealand by either bidding for Foodland once it has bedded down the Woolworths NZ purchase or by acquiring Foodland's merged New Zealand food businesses outright.

Foodland's drawn out, but unsurprising purchase effectively reduces New Zealand's supermarkets to just two players -- the Progressive chains of Woolworths, Big Fresh, Price Chopper, Foodtown, 3 Guys and Countdown with 40 per cent and the Fooststuffs co-operative brands of Pak'N Save, New World, Write Price and Four Square with 55 per cent.

And Foodstuffs, which has battled Foodland in the courts over Woolworths New Zealand for the past year, said it planned to remain "an aggressive competitor" following the merger of its two competitors.

Foodstuffs (Auckland) managing director Tony Carter said the group's focus would remain on providing value to customers.

"To us largely it's business as usual."

Arguing that a merger between the number two and three players in the industry would be bad for competition, Foodstuffs took its battle against the merger to the Privy Council. But it effectively lost its case six weeks ago when the council ruled the deal could go ahead.

Mr Carter would not comment further on any initiatives Foodstuffs might have to counter competition from a merged Foodland supermarket grouping.

"Clearly they have a lot of brands in the market. Clearly you would expect some rationalisation of those brands."

But he said Foodstuffs was "very comfortable with our brand portfolio".

Woolworths reported earnings before interest and tax of $54 million last year and cost savings and scale benefits of merging the two operations are estimated at more than $50 million.

The purchase would be partly funded by a combined A$300 million ($354 million) placement and rights issue through JB Were.

Despite interest in Woolworth NZ, Woolworths Australia was not willing to top Foodland's price partly because it could not obtain the same synergy benefits.

Macquarie Equities analyst Martin Duncan suggested Woolworths may mount a full bid for Foodland once the Perth-based company has completed the integration of Woolworths NZ. Under this scenario, Woolworths would retain Foodland's New Zealand food operations.

But AFR said it would probably sell Foodland's other operations -- its West Australian wholesaling operations to Metcash, its recently acquired Queensland and NSW Action stores to independent retailers or South Africa's Pick 'n Pay, and its New Zealand department store business Farmers.

Morgan Stanley Australia analyst Martin Yule said an alternative scenario was that Foodland sells the New Zealand food businesses separately to Woolworths to focus on its fast-growing Australian business.

Foodland's purchase of Woolworths NZ was knocked back under new rules that prohibit a substantially lessening of competition but after its Privy Council appeal it got in on the last possible day under the old rule of not creating market dominance.

Foodland said yesterday its increased purchasing power would allow it to be a more effective competitor "to the dominant market leader resulting in increased competition and better choice and value for the New Zealand consumer".

But Foodstuffs argued in the court cases that the consumer would be the loser from reduced competition after a duopoly was created in the $9 billion market.

- NZPA