Foodland claims victory in NZ test

TREVOR Coates, captain of the Foodland’s team, had one hand on the Bledisloe Cup for the trans-Tasman supermarket championship, when the linesman suddenly ran on the field waving his flag.

Foodland fought for the right to buy Woolworths NZ all the way up to the Privy Council in London, and won, only to be hit by a late Kiwi tackle after the whistle. Even as Coates was being carried shoulder high, to celebrate his $595 million purchase of the 85-strong stores chain from Dairy Farm in Hong Kong, rival group Foodstuffs won an injunction from the NZ High Court to hold up the deal.

In a dressing room press conference the Foodland side said the legal manoeuvre was a transparent “last ditch” attempt to fend off the increased level of competition they would bring to the Shaky Isles.

The injunction was lifted and now there is to be a judicial review set down for June 24. But Foodland was through playing games. The company announced that the purchase had already been stitched up – with Dairy Farm producing short-term vendor finance.

Coates said his lawyers were confident the New Zealanders would not be able to undo the transaction, adding that the tactics they employed were “mischevious and ill conceived”.

Privately-owned Foodstuffs, which controls around 55 per cent of the New Zealand grocery market, is clearly desperate to stop the Perth-based company hoisting the market share of its subsidiary, Progressive, from 24 per cent to 40 per cent by acquiring Woolworths NZ.

Foodland’s initial bid was approved by the Overseas Investments Commission, which is equivalent to our Foreign Investments Review Board. Then the goal posts were moved by the enactment of new competition laws, and the approval was overruled by the High Court. Foodland took the case to the Privy Council, which promptly reversed that decision.

Many of us thought only God had a higher authority in New Zealand than the venerable Privy Council. Apparently not. The Foodstuff lawyers had other tricks up their sleeves – including playing the national interest card to get the judicial review.

They alleged “gross and bizarre procedural irregularities” by the Overseas Investment Commission, amounting to a breach of natural justice, and evidence of bad faith and deliberate duplicity. For good measure, the belligerent Foodstuffs has suggested two Ministers of the Crown – the Minister for Finance Dr Michael Cullen and the Minister for Land, Matt Robson – had committed “errors of law” when they cleared the deal. This is spicy stuff, coming in the run up to the New Zealand election.

Foodland believes the chances of its rival succeeding with the latest legal ploy are remote.

Broker JB Were has now completed the $300 million institutional placement of Foodland shares at $18.20 to help pay for the Woolworths purchase. If the deal had been derailed it would have been a bitter blow for Foodland and the tenacious Coates, who has done a sterling job at the company since he took over the till only 18 months ago.

Sales for the third quarter of this financial year rose 26.7 per cent to $1.2 billion.

The flagship Action supermarkets business in WA boosted its takings 48 per cent with the inclusion of 40 ex-Franklin stores in Queensland and New South Wales.

These were bought from Dairy Farm in Hong Kong, which is retreating from Australasia.

Coates, who established cut-price brokers Aldi in Britain, once ran Dairy Farm supermarkets in Asia. Woolworths NZ is worth much more to Foodland than any other buyer, because of the synergies with the New Zealand business worth an estimated $NZ50 million by 2005, mainly stemming from bigger buying power with suppliers.

Foodland’s shares came back after suspension at $19.80, up 78 cents.

There has been speculation that the Australian Woolworths group, which decided not to bid for the New Zealand assets, might yet get hold of them by launching a takeover bid for Foodland down the track.

Ironically, one barrier to that scenario might be opposition from Professor Alan Fels and his ACCC.