This is Tindall’s second attempt to privatise The Warehouse after a similar bid in 2006.
Shares in The Warehouse hit an all-time low of 95c prior to the offer in early July.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
I know it’s Tindall and Aussie private equity giant Adamantem... and that everyone is supposed to hate private equity.
But it has its role. At its best, it’s there to buy out underperforming companies, sharpen them up and get them back out there.
The Warehouse is clearly underperforming as a public company. In my view, it is floundering. Its share price had fallen away from a Covid-stimulus peak above $4 to trade as low as 0.95c prior to the takeover offer.
It has returned decent dividends for investors but seems to have run out of growth options. Its profits have plunged. In June it posted a full-year profit warning that earnings would slump by up to $61.4 million.
The company seems unsure of the way forward and what its response to the increasingly acute threat of online shopping should be.
As I mentioned in my Inside Economics column, GDP data shows an incredible spike in direct online imports by consumers. Westpac chief economist Michael Gordon highlighted the trend: “Consumer imports of low-value goods have skyrocketed in recent times, up 50% in the last year and up 20% in the March quarter alone.”
Gordon doesn’t stray into speculation but it sounds suspiciously like the Temu effect. The Chinese online shopping giant has seen enormous worldwide growth in the past year. The Temu app had been downloaded 235 million times (as of last October). It had sales of US$18 billion ($29b) last year and is targeting US$60b.
Temu effectively cuts out that middleman and allows people to buy cheap Chinese goods directly from suppliers.
They are only going to get cheaper. It is the stated strategy of the Chinese Communist Party to accelerate manufacturing as a path forward from its current economic doldrums.
The Warehouse has problems unless it evolves fast. Everyone sees that. But what to do?
Should it try and go more upmarket? That seems foolhardy.
The next step upmarket lands them in Briscoe’s territory, guarded fiercely by one of the toughest and smartest retailers New Zealand has ever seen in Rod Duke.
It also seems far-fetched given the very core of the brand is a low-cost offering. We’ve all grown up with the song. It’s where we go for a bargain.
But precisely because of that multi-generational cultural connection, The Warehouse still has an incredibly strong brand and a reputation for being great value.
We’re familiar with and comfortable in their stores. We’re just running out of reasons to go there as much.
The Warehouse’s performance across the past few years has been surprising in that you’d think a cost of living crisis would give them an advantage. People need bargains.
Shares in The Warehouse hit an all-time low of 95c prior to the offer in early July. Photo / Jason Oxenham
In the past, The Warehouse has done quite well in recessions. At the peak of the GFC, from September 2008 to October 2009, its shares rose 37%.
But something hasn’t been quite right with the offering.
I don’t have any sentiment about it being a great loss to the market or NZ Inc. It is already tightly held by Tindall and the Tindall Foundation at a combined just under 50%.
And Farmers owners, the Norman family, have 19% (it’s hard to see them voting for it to compete more directly with their own beloved Kiwi retail brand).
So more upmarket is out. Being cheaper than Temu is out.
Meanwhile, consumers are crying out for a third supermarket chain. Which is where the speculation about Tindall’s plans land.
You’d have to assume it’s pretty well-informed speculation given it comes from the same story in The Australian that delivered the scoop on the proposed offer.
So good, I hope it’s true because it sounds like a good plan.
That’s just my opinion. I don’t have any stake in the game. I haven’t talked to any of the players or bankers involved on either side.
I’m not particularly keen to be involved in off-the-record, deep background shenanigans that typically follow a big takeover player.
I’ve been there.
The stakes get very high for the bankers involved. I was wined and dined, lobbied, shouted at and lied to by bankers in the heat of takeover battles back in the heady days of mergers and acquisitions in the early 2000s.
Montana wines, Auckland Airport, Carter Holt Harvey, F&P Appliances... the list goes on.
Oh, and The Warehouse...
This, of course, is Tindall’s second attempt at privatising the company he founded in 1982 and took public back in November 1994.
In 2006 Tindall – in partnership with Australian giant Pacific Equity Partners – offered $5.75 a share to delist the company (valuing it at $1.8b).
It seems relevant that the private equity firm involved in this bid, Adamantem Capital, was founded in 2016 by two former partners at Pacific Equity Partners.
The 2006 bid failed and with the exception of a bidding war between Woolworth and Foodstuffs in 2007, the shares never traded that high again.
That bidding war – which pushed the shares briefly above $7 – happened because Foodstuffs started buying shares to create a blocking stake after The Warehouse announced plans to enter the supermarket business in partnership with Woolworths.
Things are different now. It’s hard to imagine either major supermarket company would get away with overtly hostile moves towards a third player while they have the glare of the Commerce Commission on them.
So the stage is set. But the outcome is far from a foregone conclusion. As Salt Funds’ Matt Goodson pointed out in Jamie Gray’s story last week, the Normans hold the key. And those discussions are likely to go on in private.
As any fund manager will tell you, you don’t accept the first offer. Especially when private equity is involved.
And even if the offer is successful, the transition to supermarket chain will not be easy. It will require some bold and clever management to restructure the business.
But for the sake of Kiwi consumers, I hope they do.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
