Warehouse Group now up for grabs

By ANDREW JANES - The Dominion Post | Friday, 10 October 2008

The glittering prize of 85 prime retail sites from Kaitiaia to Invercargill could be up for grabs again now that The Warehouse Group has abandoned its foray into fresh food and groceries.

The retailer's share price rose 40 cents to $3.49 on the announcement yesterday that it was pulling the plug on its three Extra stores in Whangarei, Auckland and Hamilton.

The Warehouse estimated exit and restructuring costs at $10 million to $12 million pre-tax, including asset writedowns of up to $5 million.

It expected an annualised pre-tax improvement in trading earnings of about $9 million.

The ditching of Extra should clear the way for possible takeover bids from Woolworths of Australia and New Zealand co-op Foodstuffs - both of which have a 10 per cent stake in the company.

Foodstuffs Auckland managing director Tony Carter said his legal advice was that now there would not be any regulatory impediments.

Woolworths said it was evaluating whether the announcement had any effect on the appeals process at the Supreme Court. Woolworths is contesting the Commerce Commission's decision to decline its application for clearance to buy The Warehouse.

"Woolworths has not made a decision in respect of its shareholding in The Warehouse or any proposal," it said.

"Woolworths continues to monitor the performance of The Warehouse, the New Zealand retail climate, financial market conditions and the outlook for the New Zealand economy."

The Warehouse Group's managing director, Ian Morrice, said the company would consult affected staff next week.

The National Distribution Union said the decision to end the Extra experiment held risks for The Warehouse's employees and put the company at risk of being taken over by one of the predatory supermarket chains.

"It would be a pity to see another Kiwi company fall into the hands of an overseas owner like Woolworths and it would be just as bad if it was taken over by Foodstuffs, who pay some of the lowest wages on offer in retail outside of a dozen or so unionised Pak'n Saves," union national secretary Laila Harre said.

Mr Morrice said it was the failure of the hoped-for halo effect - where grocery shoppers also bought general merchandise - that was the main reason for Extra's dumping.

The likelihood of takeover bids was certainly not a factor in the decision, he said.

Mr Carter said it was difficult to establish a third force in supermarkets in New Zealand. "Clearly they did not have the scale."

What happened next was largely dependent on Stephen Tindall - whose interests control 52 per cent of The Warehouse - Mr Carter said. Mr Tindall's public relations adviser said he was overseas and could not be contacted.

ING analyst Craig Brown said both Woolworths and Foodstuffs would probably want to have some engagement with Mr Tindall before deciding on their next moves.

Tim Morris, from retail research company Coriolis, said bids for The Warehouse would be significantly lower than they would have been if the firm had abandoned Extra earlier.

"If I was a shareholder in The Warehouse, which I am, I would be asking questions like, `Why didn't you make this decision when the share price was at $7.50?"'

Aucklander Mary Smith headed for the grocery section yesterday after buying singlets in The Warehouse Extra's Sylvia Park store to see if there were any specials.

"I don't come here that often. I find their prices expensive compared to the other supermarkets."