Foodstuffs happy with a bagful

Tony Carter

Grocery giant Foodstuffs has moved to lock out a full takeover of The Warehouse after bagging 10 per cent of the country's largest listed retailer yesterday.

Almost one month after launching its surprise $150 million bid, the grocery co-operative reached its desired 10 per cent stake yesterday, spending a total of around $151 million.

This gives Foodstuffs - owner of the Pak'N Save, New World and Four Square chains - enough to block any rumoured takeover of The Warehouse by foreign grocery giants such as Wal-Mart of the United States, Britain's Tesco or Australia's Woolworths.

It could also use this stake to negotiate some form of co-operation as The Warehouse expands into groceries through its new hypermarket venture.

Foodstuffs managing director Tony Carter yesterday reiterated the stake was a "long-term strategic investment" and not a precursor to a full takeover offer which, at $5 a share, would amount to $1.5 billion and would be a stretch for the co-operative.

"We have achieved [10 per cent] so we have no intention of either increasing it or moving to a full takeover."

But Carter was careful not to rule out buying more shares in the future. "I suppose one never rules out never, but certainly there is no intent," he said.

He wanted The Warehouse to consider joint initiatives in the longer term, but these have not been discussed with that company. Opportunities for an alliance could range from joint sourcing of goods to a full merger.

Carter agreed it made sense to take the 10 per cent stake sooner rather than later to avoid Commerce Commission scrutiny if it tried after The Warehouse had built a meaningful position in the grocery market.

Tyndall Investment Management domestic equities manager Rickey Ward said Foodstuffs' stake would not stop another rival trying to acquire The Warehouse, although it would make any attempt more difficult.

Foodstuffs, with regional cooperatives in Auckland Wellington and Christchurch, made its first bid for The Warehouse on June 7 - its $5-a-share offer seemingly stalling at just over 5.6 per cent after two days.

But momentum was revived this week, with the co-operative buying shares on-market for between $4.84 and $5 to move from a 6.6 per cent stake on Monday night to 10 per cent early yesterday.

Shares in the Warehouse closed down 16c at $4.77 last night.

Foodstuffs is the second largest shareholder behind Warehouse founder and 51 per cent shareholder Stephen Tindall.

The Warehouse did not comment on Foodstuffs' stake yesterday, but when the bid was launched it called it a "defensive initiative" to protect its 57 per cent share of the grocery market as The Warehouse broadened into food with the opening of its first hypermarket last month.

The 12,500sq m Warehouse Extra at the Sylvia Park shopping centre in Mt Wellington contains a full grocery, pharmacy, liquor, bakery and general merchandise offering.

The Warehouse plans to spend more than $60 million over five years to extend the Extra format to up to 15 stores.

"It appears to The Warehouse that Foodstuffs recognises the value that will be created through the new format, and that The Warehouse's market share of the grocery sector is likely to grow to well beyond the market share the company currently enjoys," The Warehouse said last month.

However, Carter said the grocery offering was peripheral to the Red Sheds' strength in general merchandise and had cast doubt over the success of the hypermarket in New Zealand.