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The ownership shake-up of the New Zealand retail sector could become a transtasman quake if the $22 billion Pacific Equity Partners (PEP) backed takeover bid for Australian retail giant Coles succeeds, industry experts say.
The Coles bid - led by Perth-based retailer Wesfarmers - is the largest takeover
play in Australasian history.
The prospect of the new Coles owners having ties to PEP has sparked speculation about the chances of another party making a New Zealand supermarket play by getting involved in the bidding war for The Warehouse.
The price being offered for the Australian retailer also helped rekindle interest in The Warehouse shares. Yesterday they rose 12c to close at $6.89.
Based on the kind of PE (price to earnings) multiples Coles is now trading on, it was conceivable The Warehouse could be sold for well in excess of $8 a share, said one industry source.
Private equity firm PEP is backing the Wesfarmers bid for Coles in a consortium with Macquarie Bank and Permira.
PEP is also thought to be involved with Foodstuffs in its bid for The Warehouse - still awaiting clearance from the Commerce Commission.
PEP involvement in both deals would give them options in New Zealand either through a Foodstuffs bid - or acting independently, industry sources said yesterday.
Australian retailer Woolworths is also awaiting clearance and is poised to pounce on the Red Sheds.
Forsyth Barr retail analyst Guy Hallwright said the change opened up the possibility of new players in The Warehouse saga.
But it was too early to say whether Coles would change its position of limited interest in New Zealand.
"What would make Woolworths very nervous is any suggestion that Coles might get backdoor entry to the New Zealand market which it shares with Foodstuffs," he said.
Wesfarmers has paid A$16.47 per share for 11.3 per cent of Coles - a price that values the takeover at A$19.7 billion.
The price is up 8 per cent on the A$16 billion offered by private equity firm Kohlberg Kravis, Roberts & Co - which was rejected by Coles in October. KKR said yesterday it would still consider a further bid for Coles.
Coles is a retail giant in Australia but has limited interests in New Zealand apart from its 14 K-Mart stores - an investment considered "too small to be profitable and too big to easily shut down".
But the Wesfarmers takeover changes the dynamics of the Australian supermarket sector dominated by Coles and Woolworths.
And it also has implications for general goods.
Wesfarmers has 38 Bunnings and Benchmark hardware stores in New Zealand. Bunnings bought into the New Zealand market in 2001 but like other big Australasian retailers - including K-Mart - has faced problems obtaining sites to expand its big retail outlets.
For that reason The Warehouse would offer the one-off opportunity for general goods that makes the purchase appealing to Woolworths.
Both K-Mart and Bunnings have seen expansion plans stalled and would benefit from synergies of joint buying and having a bigger retail footprint.
If successful, Wesfarmers would own about 3000 supermarkets and discount stores.
One broker suggested there were now expectations that Woolworths would speed up its bidding process.
It had been understood that Stephen Tindall instructed both Woolworths and Foodstuffs to seek clearance so that any sale decision he makes can be instantly implemented.
However amid expectations that the Wesfarmers bid could hasten The Warehouse play, a Tindall source said that the requirement was not in writing and not set in stone.
Hallwright said that PEP was viewed as a possible partner with Foodstuffs' bid because as a co-operative Foodstuffs had limited prospects for such a play compared to Woolworths. "The thinking has been that maybe they can get together, maybe with Tindall," he said.
Warehouse chief executive Ian Morrice said last month the company would consider buying Coles assets in Australia from any break-up. Clothing chain Target and Officeworks were suggested as options.
