Foodland flat but Metcash gives lift

SYDNEY - Foodland Associated gave a flat first-half earnings outlook, but investors boosted its shares as much as 2 per cent to A$24.94 yesterday, despite its efforts to fend off an A$846 million ($908.5 million) bid for its Australian arm.

Rival Metcash Trading made the bid in an effort to become a solid third player in Australia's A$66 billion grocery and takeaway liquor market.

Fund manager Perpetual Trustees, which owns about 13 per cent of the target, said it liked the Metcash offer.

"We can't make any comment about price, but we are supporting it in principle," said John Sevior, Perpetual's head of Australian equities.

Foodland's flat outlook for the August-January period intensified investor interest in the bid for its domestic operations, struggling amid brutal competition from much-larger rivals, and regularly coming up short compared with Foodland's robust New Zealand unit.

"At the moment, there's a lot more focus on Foodland's takeover activity than its earnings activity," said Lucinda Chan, associate director at Macquarie Equities.

Foodland chief Trevor Coates told shareholders the outlook was based on first-quarter trading and followed double-digit growth a year ago.

"However, in relation to the second half of this year, we project a material improvement over the previous comparable period," he said.

Foodland urged its shareholders not to act on Metcash's unsolicited offer until it could review all options.

However, Perpetual's Sevior said the Metcash bid unlocks the value of Foodland: "It begins the process of realising the value of Foodland as a key strategic asset in its industry in Australia and New Zealand."

Metcash would benefit by joining its wholesale business with Foodland's distribution network.

Foodland said it thought the plan was a good one - so good, it tried to do the same in reverse last May, attempting to buy a 60 per cent stake in Metcash - but the bid failed.

- REUTERS