Warehouse takeover blocked by court

Supermarket giants Woolworths and Foodstuffs have been blocked by the Court of Appeal from launching takeover bids for The Warehouse.

Shares in The Warehouse plummeted on the news, falling over 20 per cent on opening to a nine-and-a-half year low. A short time ago the shares were down 16 per cent at $3.21.

The court, in a decision out this morning, upheld the Commerce Commission's initial ruling that neither of the supermarket companies should be allowed to bid.

No reasons for the decision were immediately available as the full decision was not to be released till confidential commercial information was removed from it for public release.

The Commerce Commission said the decision was "a victory for supermarket consumers and competition in markets".

Commission chair Paula Rebstock said: "New Zealand consumers know that more competition is needed in the supermarket sector. In coming to its decision to decline the acquisition the Commission considered that The Warehouse had already brought important new dimensions to supermarket competition, and potential competition, through its innovative supercentre stores."

The court has directed the two supermarket companies to each pay the commission $24,000 in costs, with the "usual" disbursements.

Both Woolworths and Foodstuffs expressed disappointment at the decision and said they were reviewing their options.

Foodstuffs managing director Tony Carter said it was difficult to comment in detail till the full reasons for the decision were known.

"There is a statutory 20 working day period for an application for leave to appeal to the Supreme Court. We will be utilising this time to digest the Court of Appeal ruling before making any decisions.

"At this point in time we are not ruling anything in or anything out..."

The takeover battle for The Warehouse has now been rumbling for two years. Foodstuffs started it by buying 10 per cent of the Red Sheds company at $5 a share in June and July 2006.

A few months later The Warehouse's founder Stephen Tindall publicly launched a takeover bid that he had been planning prior to Foodstuffs' involvement. However, before he could get the bid officially under way, Woolworths climbed in and bought 10 per cent at $6.50 a share.

Foodstuffs applied for Commerce Commission approval for a takeover in December 2006 and Woolworths followed a month later. Then in June last year the commission turned both parties down. But this decision was then overturned in the High Court in November.

But now the Court of Appeal has backed the commission's initial ruling.

The key sticking point to any takeover has been the recent development by The Warehouse of three "Extra" supercentre stores that have a full grocery offering.

The commission believes that left independent The Warehouse may continue to develop this format and increase competition in the supermarket sector.

Tindall, who controls just over 50 per cent of The Warehouse's shares remains the key player. If the supermarket companies decide not to go to the Supreme Court he may well decide to try again with a takeover himself.

Woolworths is known privately to have been shocked at the regulatory resistance it has met in New Zealand and it is by no means certain it will continue what has been a lengthy and costly battle.

Shares in The Warehouse closed on Wednesday at $3.82 after trading between $3.77 and $6.66 over the past 12 months.

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