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Warehouse shares have dropped 45c to $6.10 in early trading after the Commerce Commission this morning blocked both Woolworths and Foodstuffs from buying The Warehouse.
The rejection of both parties' applications to buy the retailer has dashed investor hopes of a takeover battle for The Warehouse between the two supermarket players. Both Woolworths and Foodstuffs - who each own 10 per cent of the buisiness - might appeal the decision.
Foodstuffs managing director Tony Carter said he was "very disappointed".
"We believe we put forward a robust case and its an extremely disappointing outcome," he said in a statement.
"We need to take a considered view, but what we can say at this stage is that we are keeping our options open," he said.
"Nothing is ruled out and nothing ruled in as a result of this decision from the Commerce Commission."
"Foodstuffs continues to hold the view that as New Zealand owned and operated companies Foodstuffs and The Warehouse have common synergies and culture."
In a decision this morning, the commission said it has "has declined to grant clearance to Foodstuffs and declined to grant clearance to Woolworths Limited for either of them to acquire up to 100 per cent of the shares in The Warehouse Group Limited.
"Commerce Commission Chair Paula Rebstock said that the Commission was not satisfied that either of the proposed acquisitions will not have, or would not be likely to have, the effect of substantially lessening competition in the relevant markets."
The commission did not give reasons for its decision, but said the full written decision "will be available as soon as practicable".
The Warehouse last year entered the grocery market with its Warehouse Extra stores and the commission had been considering whether letting either of the two large superemarket groups acquire it would reduce competition in that sector.
Australian retail giant Woolworths - which owns the Progressive Enterprises supermarket business in New Zealand - had been widely expected to appeal any "no" decision.
The rejection of both Woolworths and Foodstuffs also clears the way for Australian private equity firm Pacific Equity Partners to make another bid to privatise The Warehouse.
The Business Herald understands Pacific Equity Partners has been preparing another bid for The Warehouse in the event of a "no" decision.
Foodstuffs is also involved in the plan and would take part in the privatisation even if the commission refused it clearance to take over The Warehouse, one source said. Under such a scenario, Foodstuffs would likely be able to buy up to 20 per cent of The Warehouse without breaching the commission ruling.
It is understood Pacific Equity Partners' proposal is not finalised and an actual bid will be some weeks away as it may want to refresh the due dillgence it did on The Warehouse during its original privatisation bid.
Warehouse founder Stephen Tindall - who with Pacific Equity Partners was part of the plan to privatise The Warehouse last year - is expected to rejoin the consortium.
Warehouse shares rose 39c to $6.55 yesterday following after a report in the Business Herald that Woolworths had written to The Warehouse board saying it would pay $7.15 a share to gain control of the company if the Commerce Commission cleared the acquisition.
Warehouse Group chairman Keith Smith yesterday described the report as "a storm in a teacup", but said there had been "some discussions with Foodstuffs and Woolworths over the past months in an attempt to clarify their intentions".
Pacific Equity Partners and Tindall - whose interests control more than 51 per cent of the company - last year said they planned to offer $5.75 a share for The Warehouse in an attempt to privatise the firm.
But that offer was blown out of the water by Woolworths, which paid $6.50 a share for its 10 per cent stake in the company.
