Progressive’s fate in balance as Foodland negotiates

The future of Foodtown, Woolworths and Countdown hangs in the balance after indications that the Australian owner of the supermarket chains is close to a deal with a hostile bidder.

Foodland and Metcash Trading, which has bid up to A$1.1 billion ($1.17 billion) for Foodland, have asked the Australian Stock Exchange to put trading halts on their shares ahead of an announcement.

"The discussions ... have now progressed to a stage where Metcash considers it appropriate to request a trading halt," Metcash told the exchange. The halt lasts until tomorrow morning, or until the announcement is made, whichever is earlier. That means it is likely the fate of Foodland's New Zealand assets will become clearer today.

Metcash only wants to own the Australian assets of Foodland and has said it will spin off the New Zealand chains - Foodtown, Woolworths and Countdown, owned by Foodland subsidiary Progressive Enterprises - if its bid is successful.

Foodland has also said it will spin off the assets, adopting its rival's plans as a defence strategy.

Australian media were yesterday speculating that Metcash had won over Foodland's board, gaining approval for its purchase.

There was also talk that Australian supermarket chain Woolworths could be involved, preparing a A$2 billion bid for the assets that include its local namesake.

The Australian newspaper reported that Woolworths and Metcash were in combined talks with Foodland that could lead to a A$3 billion joint bid to carve up of Foodland.

Woolworths is one of several parties believed to be interested in the New Zealand supermarkets. Other possible contenders include Coles Myer and private equity groups Pacific Equity Partners, Newbridge Capital and Bain & Co.

Coles Myer was yesterday spending its money closer to home, confirming plans to launch the next leg of a A$700 million buyback of its own shares. It will buy up to 15 million shares on-market after next month.

Any agreement between Foodland and Metcash would end a game of brinkmanship in which Foodland rejected the Metcash bid even though it had been increased from an initial offer of A$846 million. The bid closes on June 4.