Although Woolworths CEO Roger Corbett retires very shortly, in the past three years he has pushed the retailer in pubs, gaming machines and into New Zealand at a cost of nearly $3billion. The Hotels and poker machines might be paying off but it’s too early to get a return from the billion-dollar push into New Zealand.
The retail giant told the NZ and Australian Stock Exchanges today that it had picked up 9.34% of the Kiwi retailer, The Warehouse Group, at a cost of more than $140million. This is nothing but a cynical ploy to either frustrate The Warehouse or to indulge in a bit of corporate “stand and deliver”.
The Warehouse is currently assessing a proposal from its founder and 51% per shareholder, Stephen Tindall and Pacific Equity Partners, to take the company private. The deal would enable the company to invest heavily in food. Rival Kiwi food retailer, Foodstuffs, has picked up a 10% stake in The Warehouse and is considering its options. Blocking the privatisation would be one option. Woolies will no doubt consider the same ploy.
Why? Because Woolies has bought the Progressive chain of Supermarkets in NZ from Foodland. It paid around $1billion for 150 outlets and will want a return. It is currently trying to bring these up to the standard of its Woolies operations in Australia and this has seen the company become involved in a bitter dispute with employees in a distribution centre.
The last thing Woolies or Foodstuffs would want is for a privatised Warehouse Group to launch an assault on the NZ food retailing market. The New Zealand Commerce Commission, which has a much tougher line on competition than our ACCC, might have something to say about the Woolies and Foodstuffs holdings in a rival and any attempts to frustrate competition.
But this hasn’t been bought as an investment for the long term, or a quick turn. Woolies could always launch a bid and see what the Commerce Commission thinks. “No” would be the answer.
What Woolies is doing is merely a piece of defensive market positioning: it has to restructure the Progressive outlets to its satisfaction and revamp its logistics. And it doesn’t want its market share attacked, nor does Foodstuffs. So it is anti-competitive.
It’s also why Woolies isn’t going to be happy if Coles Myer is taken over the by the private buyout equity groups: they will want to drive sales and costs in opposite directions and Woolies has the market share (as does rival Metcash) that a privately owned Coles would target, and the profit margins.
Meanwhile Solomon Lew is playing the same ploy of blocking a bid at Colorado Group. He’s bought 10% of Colorado above the takeover price from Affinity Equity Partners of Hong Kong but won’t say what he will do. But he can block AEP’s attempts to buy all of Colorado, just as he continues to block Woolworth of South Africa’s attempts to take listed retailer, Country Road, private.
Lew has a near 12% stake in Country Road and won’t sell. He could do the same at Coles Myer in the event of a bid and exchange his shares for say, Kmart, Officeworks or Target.