Christopher Niesche: Warehouse investors reluctant to be shut out

Stephen Tindall apparently has a poor opinion of New Zealand investors.

"Our strategy is based on our belief that The Warehouse can grow in new directions, but we accept that this requires a significant investment and that it carries risk," Tindall said as he explained why he wanted to take the Warehouse private.

If Tindall is to be taken at his word, this is a concern. He is saying he doesn't believe New Zealand investors are prepared to accept the risk involved with developing a business.

To some extent he's right: look at Kiwis' penchant for the so-called safe investments, such as houses and finance company debentures.

It is a problem New Zealand continues to struggle with. Should Tindall succeed, the Warehouse will follow a long and growing list of companies that have left the market in the past year or two: Carter Holt Harvey, Ports of Auckland, Waste Management, Powerco and Gullivers Travel.

A strong and well-functioning stock market is vital for encouraging investment in productive assets. An investment in a listed company is an investment in growth.

The whittling away of the stock market ultimately makes it more difficult for companies to raise money to keep growing - meaning many businesses will have to look overseas, with the strong chance they'll end up foreign-owned.

But to some extent Tindall is posturing when he says investors aren't prepared to take on the risk involved with his plans for The Warehouse.

It's his way of trying to overcome the contradiction often inherent in takeovers: why it's a good idea for investors to get rid of their shares in a company while at the same time it's a good idea for someone else to own them.

Hence, Tindall tells shareholders it's too risky for them, but he and Pacific Equity Partners are prepared to shoulder that risk alone.

Investors will see through this and his bid won't succeed at $5.75 a share.

Shareholders won't want to sell their holding in the company just as it starts to emerge from the disaster that was its expansion into Australia.

They will want to come along for the ride as The Warehouse enters the supermarket and liquor sectors. These are moves which - as Tindall notes - carry risk, but - as Tindall fails to note - also carry the prospect of better returns.

The Warehouse shares were trading at just under $8 four years ago and many investors will remember that.

Tindall and his partners will also have to contend with supermarket-owner Foodstuffs, which won't want to ease The Warehouse's move to start competing with supermarkets by selling its blocking stake.