Warehouse shares rise as speculation mounts about Millers

Shares in The Warehouse rose 14c to $3.82 today as speculation mounted that the discount retailer would soon announce a decision on the future of its Australian operations.

Millers Retail, the Australian discount chain mooted as a potential tie-up with The Warehouse earlier this week received a "please explain" notice after an 11.5 per cent run in its share price last week.

The Australian Stock Exchange (ASX) on Monday queried a rise in Millers' shares, which raced up nearly 12 per cent in two days last week from A77c (NZ84c) to A88c. However, yesterday it fell back to A80c.

The Warehouse revealed in June it is looking to merge its troublesome Australian "Yellow Sheds" chain with rival Millers and then sell off the joint operations.

The enlarged discount variety business would generate sales of about A$1.3 billion and have a market share of 14 per cent, making it more competitive against the dominant Australian players, Coles and Woolworths.

The Warehouse yesterday declined to make any further comment, but the pair are rumoured to be close to announcing a formal merger proposal.

Forsyth Barr broker David Price said the Australian operations had been a drag on management time, earnings and sentiment and the market would welcome some resolution of the situation.

"They have been struggling with it for quite some time."

An unsourced report in The Australian newspaper yesterday said the packaged discount variety group would likely be on-sold for about A$200 million ($218.69 million), to private equity firms Allco Equity Partners, Castle Harlan Australian Mezzanine Partners, Archer Capital and Catalyst.

"We made a comment to the New Zealand Stock Exchange on June 27 and we have got no further comment to make," The Warehouse's investor relations spokesman Mark Fennell told NZPA.

Brokers see the likely sale as positive because The Warehouse's Australian operations have been a drain on cashflow and profits.

Millers also referred to its June statement in response to the ASX query. The retailer said it advised the market in June that it was conducting a group review, with an emphasis on the troubled discount variety business.

Millers said that review included divestment opportunities but that no decision had been made.

"The company has no other explanation for the recent price changes in its securities," Millers stated.

The company is due to report its full-year result soon. That could be a fitting time for any merger announcement to be made.

- NZPA