Shares in The Warehouse, New Zealand’s biggest retailer, fell sharply yesterday after Woolworths and rival Foodstuffs were blocked by a court from launching separate bids for the company.
The court decision, if maintained, could see shareholders in Woolworths benefit through a big capital return; which is an option for our biggest retailer if it is blocked from spending more than $1.5 billion in cash on a possible bid for The Warehouse.
In New Zealand, the shares in the company (WHS) slumped 64 NZc, or 17%, to $NZ3.18 in the wake of the news of the Appeal Court decision; its biggest one-day slide since May 2003.
That’s more than half the six-month high of $NZ6.66 in December after a decision by the High Court opened the way for a takeover to proceed. Neither Foodstuffs, nor Woolworths have made a takeover offer.
Woolies shares ended at $25.20, up 16c, Warehouse ended down 18% in Australia at $2.46.
Yesterday’s decision was from the NZ Appeals Court, which upheld an appeal from the NZ Commerce Commission against that earlier High Court decision.
It means that just as the Australian competition regulator, the ACCC hands a report on Australian grocery retailing, a New Zealand court has indicated there’s a limit to the size the country’s retailers can get by taking out a competitor.
The impending ACCC report has already got the business commentators here moaning about nasty regulators and grandstanding politicians and calling for our retailers not to be hobbled.
Across the Tasman it was a different story as the country’s Court of Appeal overturned a lower court’s ruling that had allowed Woolworths and its local rival, Foodstuffs to try and takeover a third retailer, discount retailer The Warehouse Group.
The Appeal Court’s decision, which was made public on Thursday in part (the full judgement won’t be released until sensitive information is removed), prevents Woolworths and the co-operative, Foodstuffs bidding for The Warehouse. The Warehouse is actually NZ’s biggest retailer and any bid would cost more than $A1.5 billion.
Foodstuffs and Woolworths each have 10% stakes in The Warehouse, bought to block each other from succeeding in a full offer.
The two retailers last year successfully went to the High Court to overturn a Commerce Commission decision to block any potential takeover.
The Appeals Court decision could now be appealed to the final court of appeal in NZ, the Supreme Court. It was established in 2004 to replace appeals from NZ to the Privy Council in London.
The NZ Commerce Commission welcomed the ruling in a statement as a "victory for supermarket consumers and competition in markets".
"In the second appeal from the Commission’s clearance decision, the Court of Appeal has today reversed the High Court’s November 2007 decision that cleared the way for the three Foodstuffs co-operatives and Woolworths Ltd to acquire up to 100% shares in, or assets of, The Warehouse.
"The Commission’s case has focused on its concerns about competition in the supermarket sector where there is, in effect, a duopoly at present, except in the three regions where The Warehouse has opened a supercentre.
"Commerce Commission Chair Paula Rebstock says, “New Zealand consumers know that more competition is needed in the supermarket sector.
"In coming to its decision to decline the acquisition the Commission considered that The Warehouse had already brought important new dimensions to supermarket competition, and potential competition, through its innovative supercentre stores.”
“The Commission was prepared to leave it to the market to decide whether The Warehouse supercentres would be viable.
"We did not consider that the Commission could rule out The Warehouse as a significant supermarket competitor, either now or into the future. The Commission considered that the presence of an innovative third party – such as The Warehouse – had the potential to increase the level of competition in this important market.
“New Zealand consumers and competition are the winners today,” says Ms Rebstock.
The court decision upholds the powers of the Commerce Commission to regulate competition, and it has prevented duopolies from either being created or expanded in NZ.
That’s an argument that is gaining coverage and attention in Australia and it was talked about extensively in the hearings that the ACCC had in Australia for today’s report.
An example of that was the move by the ACCC to block Woolworths from buying an independent retailer in the NSW regional city of Queanbeyan (near Canberra). That would have give Woolies three supermarkets in the city to one of Coles and a small Aldi outlet.
If the move isn’t appealed or is upheld by the NZ Supreme Court, then Woolworths will be forced to make a large capital return to shareholders because it is at present generating profits faster than it is growing sales.
In the summary of its decision, the Court of Appeal said the appeal of the Commerce Commission against a High Court decision letting the two retailers lodge takeover bids would be allowed.
It set aside the clearances granted in the High Court and ordered the two supermarket chains to pay costs to the regulator.
And shareholders turned on childcare operator ABC Learning Centres, selling the shares off 12% to 72.5c after it said it will write down assets by another $213 million, not pay a final dividend and declare a full-year pre-tax loss.
The company will post a pre-tax loss of $437 million for the 12 months to July 31 and earnings before interest, tax, depreciation and amortisation (EBITDA) for the same period w
