Aussies may get a bargain from sale of Warehouse

The Warehouse chief executive Ian Morrice. Herald picture / Martin Sykes

Discount retailer The Warehouse has signed a conditional deal to offload its troubled Australian business.

A joint venture between Catalyst Investment Managers, its parent PPM Capital, and Castle Harlan Australian Mezzanine Partners -- acting on behalf of the Champ funds -- has agreed to buy the business for A$92 million ($99 million).

In 2000 The Warehouse paid A$105 million for the chain which consisted of 105 Clints Crazy Bargain and Crazy Sollys stores.

The sale will result in a pre-tax earnings expense of between $80-$90 million for The Warehouse.

The sale is expected to be completed in early 2006, subject to regulatory approval and other commercial conditions, including an agreement with Australian discount retailer Millers, which the joint venture is also buying.

The head of The Warehouse Australia, Ian Tsicalas, will stay at the helm of the new combined business, and as a result has today resigned as a director of The Warehouse.

The Warehouse was advised by Auckland-based First NZ Capital and Sydney-based firms CSFB and Allens Arthur Robinson.

The Warehouse chairman Keith Smith said while The Warehouse Australia has made improvements in the past year, a review indicated that substantial further investment was needed to achieve operating scale and future growth.

"The board considered that at this time, focusing the company's resources on developing its New Zealand businesses would generate a better outcome for shareholders," he said.

The Warehouse revealed in June it was looking to merge its troublesome Australian "Yellow Sheds" chain with rival Millers and then sell off the joint operations.

The enlarged discount variety business would generate sales of about A$1.3 billion and have a market share of 14 per cent, making it more competitive against the dominant Australian players, Coles and Woolworths.

Australia has long been a drag on The Warehouse's profits. For the first quarter of this year, The Warehouse Australia reported an 8.7 per cent drop in sales during the quarter, to A$105 million, while same store sales fell 8.7 per cent.

Sales in New Zealand for the period were up 3.2 per cent to $326 million, with same store sales up 0.2 per cent.

The Warehouse in New Zealand has been undergoing a revamp under new chief executive Ian Morrice, who took on the role in August last year.

Mr Morrice has worked at cutting clutter in the group's stores and improving the product line. A new logo was unveiled during the October quarter and a replacement store opened in Palmerston North based on layout and fixture innovations trialled at the group's laboratory store in Te Rapa.

The group has also announced plans to open an alcohol shop within its store in Fraser Cove, Tauranga.

The trial shop will be owned and run by The Warehouse Cellars, a joint venture between the group and Reliance Wines.

Shares in The Warehouse last traded yesterday at $4.09, having ranged between $3.04 and $4.39 over the past year.

- NZPA