Woolworths falls to Foodland

By SIMON HENDERY

The country's largest supermarket group, Foodstuffs, plans to remain "an aggressive competitor" following the merger of its two competitors, Progressive Enterprises and Woolworths.

Progressive's Australian owner, Foodland Associated, last night announced a deal to buy Woolworths from Hong Kong-based Dairy Farm International for NZ$690 million.

Progressive's managing director, Ted Van Arkel, said it had been a long battle, but he was pleased with the deal, which would also benefit consumers.

The Foodland chairman, Don Humphreys, said the deal would be partly financed through an issue of equity, which will raise about NZ$345 million.

The balance will be funded from bank debt.

Foodland asked for trading in its shares to be halted yesterday pending an announcement.

The company's shares have risen this year from a January low of A$12.08 to last week's close at $19.01, near their high of $A19.36.

The merger between Progressive and Woolworths will give Foodland about a 40 per cent share of the grocery market.

Foodstuffs - a grouping of three co-operatives based in Auckland, Wellington and Christchurch - has about 55 per cent of the grocery market.

Foodstuffs (Auckland) managing director Tony Carter said the group's focus would remain on providing value to customers.

"We will be working very hard to ensure we continue to do that.

"To us largely it's business as usual."

Arguing that a merger between the number two and three players in the industry would be bad for competition, Foodstuffs took its battle against the merger all the way to the Privy Council.

But it effectively lost its case six weeks ago when the council ruled that the deal could go ahead.

Carter would not comment further on any initiatives Foodstuffs might have to counter competition from a merged Foodland supermarket grouping.

"Clearly they have a lot of brands in the market, clearly you would expect some rationalisation of those brands."

But he said Foodstuffs was "very comfortable with our brand portfolio" - predominantly New World and Pak 'N Save chains.



Foodland has been in negotiations with Dairy Farm over the sale of Woolworths since the Privy Council ruling in late April.

Progressive operates the Foodtown, Countdown and 3 Guys chains.

The Woolworths group comprises the Woolworths, Big Fresh and Price Chopper chains.

The Foodstuffs co-operatives run Pak'N Save, New World, Write Price and Four Square.

Australia's biggest grocer, Woolworths, unrelated since 1979 to the New Zealand operation, also conducted due diligence on the business but did not make a formal offer.

"The new speculation is that this acquisition makes Foodland a takeover target," said David Spry, head of research at Melbourne-based broker F.W. Holst, "and Woolworths [Australia] and Tesco [UK]are interested."