KEY POINTS:
Woolworths Australia and Foodstuffs have a 75 per cent chance of overturning a Commerce Commission decision preventing them from trying to buy The Warehouse, Citigroup analysts say.
The two players in New Zealand's supermarket duopoly look to be keen on buying The Warehouse Group which has recently moved into their turf with the first of 15 Warehouse Extra grocery offerings.
But the Commerce Commission has rejected both saying that if they bought the red sheds it would harm competition in the market.
Citigroup Wellington says the sharemarket is underestimating the prospects of the two supermarket giants winning appeals and that has given investors an opportunity.
Citigroup has released a note saying that the Commerce Commission rejection has kept the share value down at around $6.00 to $6.10. The shares closed yesterday at $6.09.
Analysts Andy Bowley and Craig Woolford said the high chance of a successful appeal value it at $6.84 and any follow-up takeover bid might see the red sheds selling at $7.00 to $7.50. Any appeal decisions are unlikely before November and there are prospects for legal challenges beyond that.
Before the commission revealed its reasons, market analysts had suggested there were few ground for the commission to turn them down.
But while competition lawyers have said there are grounds for appeal they have not expressed such strong confidence in the likelihood of it succeeding.
A key aspect of the commission decision was that the Woolworths or Foodstuffs purchase would remove the prospects for a third player in the grocery market.
Citigroup suggested that should The Warehouse divest all its potential and credible Extra sites it would have little chance of ever being able to be a grocery player.
Market analysts are saying that whatever happens between now and the date of hearings in the High Court on October 23 any alternative bids - such as suggested interest in a revived privatisation bid by majority owner Stephen Tindall and Pacific Equity Partners - have been sidelined.