KEY POINTS:
Despite the market turmoil investors are sticking with the Warehouse Group as the Commerce Commission prepares to take the next step in trying to prevent its sale to Foodstuffs New Zealand or Woolworths Australia.
They don't seem overly concerned that the global financial crisis could hurt prospects for a swift profit from any sale.
On January 29 Commission lawyers will apply to the High Court for permission appeal the decision by High Court December 18 which overturned its ban on the sale of the Red Sheds.
The Court is expected to agree to the case going to The Court of Appeal and if that occurs any sale process will be delayed until mid-2008 at the earliest.
A lot of small investors have cashed up during the share's ups and downs as a sale has seemed imminent.
A sale has been touted since September 2006 when controlling shareholder Stephen Tindall revealed his ill-fated privatisation bid with Pacific Equity Partners (PEP).
Since the start of 2008 the NZX and other sharemarkets markets continued to fall but the Warehouse Group's shares have been comparatively buoyant.
Shares in the retailer increased with the rest of the market yesterday and rose 21c to close at $5.52.
That is just 10c below the average price four months ago.
Optimism in the face of a global economic crisis is despite the fact that any offer of a premium price relies on competition between two alternative bidders.
And Foodstuffs' interest, believed to have some support with controlling stakeholder Stephen Tindall, has been closely linked to Tindall's former partners - private equity company Pacific Equity Partners.
That sector is built on borrowing large sums and has - on the face of it at least - been severely hit by the crisis in credit bought on by the US sub-prime mortgage crisis.
Private equity companies typically retain stakes in their investments for three to five years, build them up and then sell them on, typically through IPOs. Private equity has flourished in an upbeat sharemarket where stock prices keep going up and private equity interest has pushed up stock prices as well.
But while that seems unlikely Warehouse investors' optimism for a sale seems to be higher.
Macquarie Equities investment director Arthur Lim said there was still a strong expectation that a sale would go ahead and that investors see Woolworths as the most likely buyer.
The purchase of the Warehouse for around $2 billion was small for a company like Woolworths with a market capitalisation of around $42 billion relatively unencumbered by debt.
In theory Woolworths could buy the Warehouse with a one for twenty share issue, he noted.
But Lim said PEP was also not as vulnerable in the current economic situation as other private equity companies which are having trouble raising money because of the credit crunch created by the US sub-prime mortgage crisis.
"There are some private equity players - including PEP and CVC that which took the view 12 months ago that the stock market equities were overpriced.
"As a result they were not exposed in the current problems and did not need to raise money."
