10 Oct 2008

Warehouse shares up on takeover talk

5:08 pm on 10 October 2008

Shares in The Warehouse have surged 13% after the end of its supermarket-style Extra division was announced, reinvigorating takeover talk.

Its share price rose 40 cents to $3.49 on the NZX50 on Thursday after the announcement.

The Extra grocery concept was central to a decision by the Court of Appeal blocking the Woolworths and Foodstuffs two supermarket chains from taking over The Warehouse.

Since then, the retail market has nose-dived into recession and there's doubt a takeover offer will be re-visited any time soon.

The Warehouse says the three Extra supermarkets failed to attract more sales and it will stop selling groceries over the next six months.

Chief executive Ian Morrice says the decision was reached on pure commercial reasoning, and is not a tactical retreat.

In a statement on Thursday, Woolworths said it's considering whether The Warehouse's decision to stop selling groceries may change its propects of buying the company.

Woolworths applied for permission to appeal to the Supreme Court after an application for clearance to bid for The Warehouse was declined.

Foodstuffs is another supermarket operator that could launch a rival bid for the Warehouse.

Door now open - Foodstuffs

Foodstuffs managing director Tony Carter says the takeover door now appears to be open.

Minter Ellison Rudd Watts competition law expert Andrew Matthews says the law is now unlikely to stand in the way of a takeover of the Warehouse.

However, he says the Commerce Commission may ask The Warehouse to prove it had not exited groceries to welcome a takeover, and could argue the Warehouse is a potential competitive threat in the supermarket sector.

Forsyth Barr analyst Guy Hallwright says Woolworths is likely to be the most serious buyer, but nothing is certain and any takeover offer will now be based on the market's outlook.

Woolworths says it is monitoring the performance of The Warehouse, the New Zealand retail climate, financial market conditions and the outlook for the New Zealand economy.