Speculation mounts on Woolworths $700m sale

By SIMON HENDERY, retail writer

The Hong Kong-based owner of Woolworths, Dairy Farm International, is not commenting on an Australian media report that it is poised to sell the supermarket group to Australian retail giant Foodland Associated for $700 million.

The Australian Financial Review said it understood Foodland finalised the deal to buy Woolworths on Friday, beating off rival Australian bidder Woolworths (which is unrelated to its New Zealand namesake).

Dairy Farm International group finance director Howard Mowlem yesterday would not say where negotiations stood between Dairy Farm and the bidders.

Neither Foodland nor Woolworths in Australia could be reached for comment.

The Woolworths New Zealand group of more than 80 supermarkets comprises the Woolworths, Big Fresh and Price Chopper chains and is the country's third-largest supermarket group, with a market share of about 20 per cent.

Perth-based Foodland already owns New Zealand's number-two supermarket group, Progressive Enterprises, which has about 25 per cent of the market through the Foodtown, Countdown and 3 Guys chains.

Foodland sought Commerce Commission clearance to buy Woolworths 12 months ago but became embroiled in a protracted and expensive legal battle with number-one market player Foodstuffs (Pak 'N Save, New World, Write Price and Four Square).

Foodstuffs argued that cutting the number of market players from three to two would disadvantage consumers by reducing competition.

However, Foodland said consumers would benefit by the presence of one stronger competitor up against Foodstuffs' total market share of about 55 per cent.

Six weeks ago, the Privy Council ruled that the Commerce Commission was correct last July when it granted clearance for a possible Progressive/Woolworths merger.

Since then, Dairy Farm has held negotiations with Foodland and Woolworths Australia, the only two serious bidders for the Woolworths New Zealand business.

Foodland has always been seen as the more likely victor because the possible cost savings it could achieve by merging the two supermarket groups meant it was likely to offer Dairy Farm a higher bid.

Foodland group managing director Trevor Coates said last month that the acquisition would likely be funded by a mix of debt and equity.

Saturday's Australian Financial Review article said a A$300 million ($351 million) combined share placement and rights issue to part-fund the deal could be announced as early as tomorrow.

Food and drug store giant Dairy Farm operates more than 2000 supermarkets, hypermarkets, convenience stores, drugstores and restaurants across Asia and the Pacific.

Quitting New Zealand appears a logical move for the company, which pulled out of Australia last year by selling the Franklins supermarket chain.