Metcash bid may not be all it seems

SYDNEY - Metcash Trading could potentially fail to return the New Zealand assets of Foodland Associated to the takeover target's shareholders under the terms of its bidder's statement.

The bidder's statement released on Friday evening fleshes out the grocery and liquor wholesaler's proposal to acquire the supermarket chain, which was announced last month. But some of the conditions contained in the document sour what at first blush looked like an attractive deal for Foodland shareholders.

Under the deal, Foodland shareholders could lose the company's New Zealand assets if less than 75 per cent of Metcash shareholders approve Metcash's plan to return that part of the business to Foodland shareholders after the acquisition.

Foodland shareholders would not have a say in the matter because Metcash intends to give them non-voting shares in return for the New Zealand operations.

"Metcash is going to take the whole business, do the restructure and then Foodland's New Zealand business will get spat back out," DJ Carmichael & Co analyst Wendy Chesson said. "There's always a risk that the story may turn and it's not going to get spat back out again. It is up to Metcash to return it as all the control goes out of Foodland."

In addition, Metcash has stipulated that it will reduce its bid if Foodland returns more than 43Ac (47c) to shareholders, which may cause further problems for the company behind the IGA, Campbells Cash & Carry and Australian Liquor Marketers brands.

"Given there is going to be a split, if Foodland wants to return some money to shareholders, they're going to have to think twice about it," Ms Chesson said.

According to Ms Chesson, Foodland shareholders would look to the company's management for guidance on what to do next.

Foodland on Friday advised shareholders to take no action in response to the Metcash bidder's statement.

Ms Chesson said that Metcash's hostile bid for Foodland was quite complex compared with other takeovers.

"A simpler way to do it would be to restructure Foodland and then sell on the Australian asset to Metcash."

She added that it was unlikely that Foodland would defend itself with a counter-offer for Metcash given Foodland's underperforming wholesale divisions.

- AAP