Foodstuffs launches 10 per cent raid on Warehouse

Giant grocery co-operative Foodstuffs today launched a surprise $150 million raid for 10 per cent of discount retailer The Warehouse.

The offer, at $5 a share, was 28 per cent above yesterday's trading price of $3.91.

But activity on the sharemarket pushed The Warehouse price to $5.04 shortly after the stand in the market was launched at 10.50am, suggesting Foodstuffs might not have it all its own way.

Jeremy Coe from Goldman Sachs JBWere said the market seemed to be saying that Foodstuffs would have to pay a higher price.

"At this stage it doesn't really look like they're going to get it. The market's telling us that they're going to have to pay a bit more."

Half an hour after the stand was launched, Foodstuffs only had 2 per cent.

Shares in The Warehouse had been trading at a discount to most people's expectations, Mr Coe said.

The Warehouse board in a statement said it believed the offer did not represent any significant premium above fair value, with the recent share price considered a significant discount to fair value.

The offer was also not considered to be in the best long-term interests of the company, The Warehouse board said.

Warehouse founder Stephen Tindall had confirmed to the board that he and other Tindall interests were not sellers into the Foodstuffs offer.

The move was believed to be a defensive initiative by Foodstuffs intended to protect a reported 57 per cent market share of the food sector in advance of The Warehouse expanding its grocery business, The Warehouse board said.

It believed Foodstuffs had timed its move to coincide with the opening tomorrow of The Warehouse Extra at Sylvia Park in Auckland, the company's first fully integrated general merchandise, apparel and food store.

"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."

At 11.30am an escalator clause was added to the Foodstuffs offer, hinting that the offer price could be raised.

The escalator would ensure that anyone who sold to Foodstuffs during the stand in the market at the $5 a share price would not lose out if Foodstuffs bought shares in The Warehouse at a higher price within the next six months.

ABN Amro, the broker acting on behalf of Foodstuffs in the stand, said shareholders who sold in the stand would receive the amount of the excess above $5 for each share sold to Foodstuffs.

The excess would be adjusted for all normal factors such as dividends, subdivisions, consolidations and share issues.

All trades already matched under the stand would receive the escalator.

Foodstuffs (New Zealand) Ltd managing director Tony Carter said the stake was a strategic long-term investment for Foodstuffs and there was no intention to move to a full take-over offer.

Asked if the 10 per cent would be a blocking stake to prevent rivals gaining control of The Warehouse, he said that was not Foodstuffs' primary intention.

Mr Carter told NZPA that Foodstuffs had decided to go after 10 per cent because it was seen as an achievable target.

The $150m cost of the stand could be funded out of working capital.

He said he had phoned Mr Tindall this morning, but the possibility of him selling his stake had not been discussed, and it was too early for other discussions.

"If Stephen were to sell, we would then be required to make a full takeover offer and that's not our intent," Mr Carter said.

It was "absolutely coincidental" that The Warehouse was opening The Warehouse Extra store tomorrow, something he had been unaware of until yesterday.

"Needless to say, I'm not invited," Mr Carter said.

The possibility of an alliance between The Warehouse and Foodstuffs could be explored in time, but Commerce Act regulations and other such issues would need to be worked through.

Foodstuffs would not be seeking representation on The Warehouse's board, and was comfortable with the management of the The Warehouse.

Foodstuffs is the country's largest supermarket group with about $6 billion in annual turnover. It is a co-operative broken into three regional co-operatives with a central co-ordinating body, and operates the Pak'N Save, New World and Four Square chains.

Macquarie Equities investment director Arthur Lim said 10 per cent was a blocking stake. He said it appeared to be a hostile operation, otherwise Foodstuffs would have first consulted with The Warehouse founder Stephen Tindall, who controls 52 per cent of the company.

"It points to an undercurrent of bigger corporate activity behind the scenes in the retailing sector."

He said if Foodstuffs were looking for a full takeover, it would need Mr Tindall on board.

ABN Amro said it had received instructions from Foodstuffs to buy up to 30,549,999 -- 10 per cent -- of ordinary shares in The Warehouse.

At the time of its notice, shortly before the market opened at 10am, it had bought 5,116,091 shares -- 1.7 per cent -- off-market from various parties.

Mr Carter said The Warehouse was seen as an attractive investment opportunity.

"It is a well-run business in the retail sector which we know and understand, and being New Zealand-owned and controlled its culture is similar to ours," he said.

- NZPA