Woolworths Seen as Front Runner for NZ's Warehouse

Australian grocery chain Woolworths' deep pockets are likely to make it the frontrunner to buy New Zealand retailer The Warehouse Group , whose controlling shareholder said on Friday he was open to offers.

Analysts said both Woolworths and local co-operative Foodstuffs are expected to bid for The Warehouse after a court cleared the way for them, in deal that could be worth up to NZ$2.64 billion (US$2 billion).

But the Australian firm's ability to fund a takeover makes it the more likely to be successful, said Deutsche Bank analyst Kristan Walker.

"I can't go past Woolies, just because of the firepower of its balance sheet," Walker said, adding Woolworths would probably look to use a mix of debt and equity to fund a bid.

Woolworths has a market capitalization of about A$40 billion (US$35 billion), while Foodstuffs is estimated to have a capital base of about NZ$1 billion. Both companies, who each hold 10 percent of The Warehouse, have said they are considering their options.

Shares in The Warehouse, New Zealand's largest listed retailer, closed on Friday up 1 percent at NZ$6.21, after surging almost 25 percent on Thursday following the court decision.

A number of brokerages have upgraded The Warehouse to buy, believing at least one bid to be imminent. Most analysts expect a successful bid to be well above NZ$7 a share, with Macquarie saying it could be as high as NZ$8.50, valuing the company at NZ$2.64 billion.

Warehouse founder Stephen Tindall said on Friday that he was open to offers.

"I will consider any offers that might arise on the basis of doing the best I can for shareholders, customers, staff at The Warehouse and the community," Tindall said in a statement.

Tindall and interests close to him control 52 percent of The Warehouse, which retails a range of general goods and apparel from its 85 "Red Shed" stores.

Analysts have said that Foodstuffs will look for a partner in any bid, possibly private equity firm Pacific Equity Partners.

Tindall and PEP last year launched a NZ$866 million bid to privatize The Warehouse, which failed after the share price surged over the offer price of NZ$5.75 a share.

New Zealand's High Court had on Thursday overturned a ruling by the country's competition regulator which prevented Woolworth's and Foodstuffs from bidding for The Warehouse.

The regulator had ruled a bid from either party would substantially lessen competition in grocery retailing.

It has said it would wait for the court's reasons for the decision, due to be released on Monday, before deciding whether to take the case to the court of appeal.