Foodland 'hung out to dry' on $600m deal

By SIMON HENDERY

Australian retail boss Trevor Coates flew out of Auckland yesterday, fuming that his company had been "hung out to dry" by the Government over its foundering attempt to buy a $600 million New Zealand grocery business.

Mr Coates is managing director of Perth-based Foodland Associated, which ranks with Woolworths and Coles Myer as one of Australia's three big food and houseware retailers.

An expansion-hungry Foodland - which already owns Farmers department stores and the Progressive supermarket group in New Zealand - has been eyeing the profitable 83-store Woolworths NZ group (which includes Big Fresh and Price Chopper) since Hong Kong owner Dairy Farm International sold its Franklins chain in Australia and indicated it might also quit New Zealand.

But a Commerce Commission clearance for the bid was stymied by the Court of Appeal following a challenge by grocery chain rival Foodstuffs.

Foodland's plea for Government intervention has fallen on deaf ears. The Commerce Minister Paul Swain reiterated to Mr Coates on Monday night that although a hasty law change would fix the legal glitch that led to the Court of Appeal decision - and potentially affected 10 other mergers approved during the same period - the Government would not legislate to overturn the court's ruling as it affected Foodland.

"I'm leaving New Zealand on this occasion no clearer as to why we have been marginalised than when I came, which is very concerning," Mr Coates said yesterday.

After initially choosing to keep quiet during his lobbying trip to Wellington this week - he declined to talk following his Monday night meeting with Mr Swain - Mr Coates changed tack yesterday and took swipes at the Government and rival Foodstuffs, claiming the case would damage New Zealand's business reputation, and consumers would lose out.

"The ultimate concern for us is that we have been lied to by politicians," he said. "We have been given assurances privately and in the public domain which they have reneged on, and turned full circle on in the matter of a week to 10 days."

Foodstuffs had "used purely commercial reasons to disrupt our application", he said. "If they are allowed to grow at the levels they have in the past, ultimately the consumer will miss out. There will be less choice."

Mr Swain said that, although he understood Foodstuffs' frustration, there were constitutional concerns about legislating to overturn a Court of Appeal decision.

The goal posts had also shifted when the amending law - the Commerce (Clearance Validation) Amendment Bill - had gone to a select committee for consideration and the Government was duty-bound to take note of the select committee's recommendations

"I was keen to act on this quickly. It was Parliament's decision to send it to a select committee," he said.

Foodstuffs (Auckland) managing director Tony Carter repeated the company's argument that a combined Progressive/Woolworths operation, with 40 per cent of the market, would lead to reduced competition against Foodstuffs' 55 per cent share. That view has been echoed by the Consumers Institute.

Foodland shares dropped 2.5 per cent yesterday morning on the Australian Stock Exchange, after falling 6 per cent on Monday.

The price had risen almost 40 per cent in the past four months - a gain analysts attribute to speculation over the potential Woolworths takeover.

Kim Christie, an analyst with CIBC World Markets in Perth, said because of the low margins in food and household product retail Foodland was eager to boost the scale of its New Zealand operation.

"They felt they didn't have the scale to grow the [New Zealand] business into what they wanted it to look like and this was the perfect opportunity to pick up a large group and very quickly double their business," he said.

Mr Coates said Foodland would wait until the quick-fix legislation was passed - probably this week - before deciding on its next move.

Seeking leave to appeal to the Privy Council was one option. Reapplying for Commerce Commission clearance under the new tougher competition test imposed by the Court of Appeal was another.

"We've got to be confident that any application under the new test would be fairly heard, fairly considered," said Mr Coates.