Woolworths buy puts heat on Tindall

Woolworths' lightning raid on shares in The Warehouse has cast doubt over Stephen Tindall's privatisation plans for the company.

The Australian supermarket giant secured a 10.1 per cent stake in The Warehouse, picking up most of the shares in a Tuesday night buy-up with a $6.50 offer.

The $200 million purchase values the company at $2 billion - significantly above the $1.8 billion value in Tindall's takeover proposal.

Last night Tindall said his clear preference remained to privatise The Warehouse as he believed this was the best way for the company to implement its strategy - which is for a faster rollout of its Extra grocery offering - but "we need to understand the motivations and intentions of the new shareholder and the implications for all shareholders and stakeholders".

He and his backers at Australia's Pacific Equity Partners would analyse market developments and assess implications for the proposal.

Tindall and PEP had planned to present their proposal to The Warehouse board of directors this week, but the meeting has been delayed while they review plans.

Analysts predicted that aspects of Tindall's two-tier proposal for a $5.75 to $5.95 cash offer and a buyback delivering up to $6.90 for around 12 per cent of investors would be changed.

Even before the Woolworths raid some investors were raising concerns about grey areas over how the deal would be perceived by Inland Revenue.

Woolworths - which owns the Woolworths, Foodtown and Countdown supermarket chains in New Zealand - joins rival supermarket operator Foodstuffs on The Warehouse share register.

The two players in the grocery duopoly now have a combined stake of 20.2 per cent in The Warehouse as it plans to move into their turf.

Foodstuffs chief executive Tony Carter declined to comment on the arrival of Woolworths.

He said he had met Tindall, who had advised of the scope of his plans, but he told him he would be waiting for a final offer before responding.

Woolworths refused to discuss its plans, including whether it would continue to acquire shares now that it was past 10 per cent. However, it would be seeking a meeting with Tindall.

Under a traditional takeover, both Foodstuffs and Woolworths could block a 100 per privatisation with their 10.1 per cent stakes.

But Tindall is planning to go ahead with a more controversial "scheme of arrangement", which would require just 75 per cent shareholder backing.

If he cannot find an accommodation with Foodstuffs or Woolworths, to reach 75 per cent Tindall and PEP would need acceptances from all but 5 per cent of the other Warehouse shareholders for his bid to proceed.

Analysts approached by the Business Herald said the Woolworths offer clearly changed the dynamics by offering a $6.50 cash offer that was much more straightforward than the complex proposals being developed by Tindall and PEP.

They questioned whether the Woolworths offer might have cleared out some of the "easy-to-get investors" and said it would be harder for Tindall to get the remaining shareholders who hoped to reap big rewards from the ongoing restructuring.

Rickey Ward of Tyndall Investment Management said that, as a result of shareholders selling, there was now another bid in play for the shares.

"The $5.75 offer [from PEP and Tindall] will likely require some adjustment," he said.

An independent report into the takeover and advice from independent directors to shareholders would be influential, said Ward.

David Lane of UBS Securities said the Woolworths purchase was making an already complicated deal look messy. "Tindall has not yet made an offer; it could be a scheme rather than a takeover," said Lane.

He said it was not clear which shareholders would be able to vote at the different stages that would be required to approve the Tindall and PEP proposal.